Term Deposits vs Savings Accounts

Use Savvy's in-depth guide to compare term deposits and savings accounts to help you weigh up which is best for you.

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, updated on September 11th, 2023       

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Term deposits and savings accounts can both help you save, but their functions are very different. Where one offers security, the other boasts more flexibility. Deciding which one works for you can leave you scratching your head.

To make the decision easier, you can find out all about both account types and how they work right here with Savvy. By comparing their myriad features with us, you can be more confident in your search for an account which suits your needs.

How do savings accounts work?

A savings account is a secure fund where you can earn interest on your money. Where a standard bank account is meant for day-to-day transactions, this type of account is specifically for saving. Banks offer you interest to motivate you to build up a nest egg and leave your money untouched. Interest is generally calculated daily on a percentage of your balance at a rate determined by your financial institution. This interest rate is usually in line with the RBA’s cash rate.

Financial institutions offer a range of savings accounts, with many of these being online. Some offer bonus high interest for meeting their monthly requirements or ‘introductory’ high rates. Other online savings accounts are tailored to demographics such as pensioners, students, young people and even babies.

You can open a savings account at a branch from the age of 12, as long as you’re accompanied by a parent or carer. You are entitled to open a savings account by yourself from the age of 14.

How do term deposits work?

A term deposit allows you to lock away a sum of money for a set period to earn interest at a fixed rate. They are widely seen as one of the less risky ways to bank because they make your money harder to dip into. Unlike standard savings accounts, you have to give a month’s notice if you want to withdraw even a small amount. You will also have to deposit a lump sum to open the account. Term deposits are ideal for people who want to ‘set and forget’ their money and can afford not to dip into their savings. You can use Savvy’s compound interest calculator to estimate how much you can earn from your savings.

How should I compare term deposits and savings accounts?

While it may not seem so on the surface, savings accounts and term deposits differ in many ways. Whether it’s the way you access your money or how you contribute, it’s important when you’re comparing with Savvy to select the one that works best for you. The differences between the two can include:

Interest rates

Savings accounts come with variable rates which can fluctuate along with the economic climate. Term deposits, however, offer the security of a fixed rate. This gives you certainty over the rate of your return on your capital. Term deposits tend to also offer more competitive rates. The way interest is calculated on a savings account is also different, with interest compounding either daily or monthly. However, a term deposit calculates interest at the end of each month. If you want to see how an interest rate can affect your savings goal, use Savvy’s online savings calculator.

Accessibility

Term deposits make it tougher to tap into your nest egg than savings accounts. Under term deposit guidelines, you must provide 31 days’ written notice if you want to dip into your funds or you’ll have to wait for the date of maturity. You can access your money under special circumstances, such as severe illness or disability. On the flip side, you can generally tap into your savings whenever you like, although you may forfeit any bonus interest earned for the month if you do so beyond the required limit.

Account requirements

Earning a top interest rate on a savings account is often contingent on you meeting a series of account requirements. These can include minimum deposits and balances or not making any transactions for the month. If you’re opening a term deposit, you’ll be required to make an upfront deposit to get your account up and running. This varies depending on who you bank with, but it can be between $1,000 and $5,000. However, overall, there are fewer active requirements to adhere to with this account type.

Fixed terms

You can lock your funds away in a term deposit for anywhere from one month to five years. The longer you leave your money untouched, the more interest you’ll accrue. By comparison, a savings account has an indefinite life span. This means you could earn interest on your funds for well over 20 years.

Depositing

You can top up the balance on your savings account whenever you feel like it, whereas a term deposit only lets you make contributions when you first open the account or upon maturity. Savings accounts can come with minimum deposit conditions, so it’s best to compare these features with Savvy before settling on one to open. You can use Savvy’s online calculator to work out how much to deposit to achieve your savings goal.

Bonuses

You can simply lock in a high interest rate when you open a term deposit, whereas savings accounts tie competitive bonus rates to you meeting monthly account requirements.

Fees

Savings accounts can come with a slew of fees for account keeping, staff-assisted transactions and paper statements. These generally range from about $3 to $5, but this depends on where you bank. Some accounts will waive these fees for meeting monthly benchmarks, similar to the bonus interest requirements. In contrast, term deposits tend to have no fees. However, you will have to pay a penalty of up to $30 if you want to access your money early.

Compare savings accounts

Are you looking to grow your savings?  Compare a wide range of savings accounts with Savvy so you find the best deal in Australia and the highest interest rate to help grow your savings.  

site-logos Rabobank High Interest Savings Account
  Maximum interest rate Base interest rate Introductory offer period Government guarantee  
site-logos 5.75% p.a. 4.40% p.a. 4 months Yes
Go to site

Rabobank’s High Interest Savings Account helps grow your savings while offering flexibility and easy access to your money.

More details
site-logos Up Savers Account
  Maximum interest rate Base interest rate Introductory offer period Government guarantee  
site-logos 3.60% 0.00% N/A Yes
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Use invite code SAVVY10 for $10 upon successful sign-up. (Refer to offer T&Cs on Up website)

More details

Disclaimer: Savvy is not advising or recommending any particular product to you. We provide general information on products for the purposes of comparison, but your personal situation or goals are not considered here. Although we try to make our comparisons as thorough as possible, we do not have information on all products on the market on our site.

You should always consult a given offer's PDS or further documentation in the process of deciding on which loan to choose, as well as seeking independent, professional advice. If you decide to apply with one of the lenders listed above via our website, you will not be dealing with Savvy; any applications or enquiries will be conducted directly with the lender offering that product.

Top tips for choosing between term deposits and savings accounts

Work out a savings goal

Whether you’re saving for a big purchase or just a rainy day, having a goal is one of the keys to building up a healthy bank balance. Consider what you’re saving for and compare the two accounts to see which can help you achieve it faster. If you’re aggressively saving for a home, for instance, a term deposit may be the best option for you.

Know what you can afford

Putting money away is an integral part of saving, but you don’t want to stretch yourself too thin to do it. Compare the different requirements accounts set and find a range of conditions which are comfortable for you to meet.

Compare with Savvy

Savvy’s easy-to-use comparison tables and comprehensive guides take the headaches out of finding the right account for you. By comparing offers side by side, making the decision between a term deposit and a savings account is made simpler for you.

Assess whether you’ll need your money

Locking your money away in a term deposit can be a great way to earn interest but weigh up if you can afford to go without that money. Use Savvy to compare the different levels of accessibility accounts have and find a perfect fit for you.

Frequently asked savings questions

Is a term deposit seen as an asset?

Yes – a term deposit can be seen as a liquid asset regardless of how long you have left until maturity. A term deposit can be used as an assessable asset when going for a loan or applying for government benefits.

Can I open a term deposit for a child?

Yes – you can open a term deposit for a child under the age of 18. However, it may save you time and hassle to open an account in your name. This allows you to control the account if your child is too young to sign approval forms for the term deposit you’re looking for.

What documents will I need to open a term deposit?

You will need to supply photo ID to open a term deposit. This can come in the form of the following:

  • A current driver’s licence
  • An Australian or foreign-issued passport
  • A state or territory-issued Proof of Age card
  • An identity card or a government-issued travel document
What happens to my term deposit upon its maturity?

Your financial institution will notify you when your term deposit is approaching maturity. If you ignore it, your term deposit will automatically roll over. If you choose to withdraw, you can access your money freely.

What guarantees do I have over my funds?

A federal government-backed initiative, the Financial Claims Scheme backs balances up to $250,000 in the event your bank, credit union or building society fails.

Can I get an ATM card with my savings account?

No – savings accounts don’t come with debit or bank cards. The only way you’ll be able to withdraw money from your savings account is by electronic transfer to an adjoining linked account.

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