The main benefits of a savings account are simplicity and low risk. You're not investing anything, so your money can simply sit in the account and earn interest. It's also safer than hiding cash under your mattress, as it can't be easily stolen or damaged.
Another low-risk option is to park your savings in a term deposit. These are similar to savings accounts; however, once you've deposited your money, you can't easily withdraw the funds until the end of a fixed term. The interest rates are fixed in advance, so it's simpler to calculate the interest you'll earn over time.
Difference between savings accounts and term deposits
If you're seeking a relatively safe option to grow your money, savings accounts and term deposits are two popular choices. While the former provides flexibility, the latter offers certainty. For example, with a savings account, you can access your funds when needed, which could make it a handy option for short-term savings goals or as an emergency fund.
The interest rates on savings accounts are variable, meaning they can fluctuate based on market conditions or changes in the Reserve Bank's cash rate. In contrast, term deposits offer a fixed interest rate over a predetermined period, ranging from a few months to up to five years. This fixed rate provides the certainty of knowing exactly how much interest you will earn by the deposit's maturity, making term deposits suitable for long-term financial planning where immediate access to the funds is not required.
In general, term deposits can be a competitive option for anyone prone to dipping into their savings, as you can lock away your money to earn interest at a fixed rate, making slow and steady progress towards your savings goals. While it is possible to end your term deposit early to access your money if you need it, you'll likely need to provide plenty of advance notice (often at least a month), may miss out on interest income, and may also need to pay an early withdrawal fee.
Choosing between a savings account and a term deposit depends on your financial goals and whether you need to access your money in the short term. Check our comparison tables for the latest comparisons and detailed analysis of both savings accounts and term deposits, including the most competitive rates and terms available. RateCity provides up-to-date information and tools to help you make an informed decision that best suits your savings strategy.