Fix or flex? Term deposits versus savings accounts

March 16, 2011

Australians with savings goals are weighing up all their high interest options in 2011. So when term deposits are pitted against savings accounts, which one will come out on top with the highest rates and best features?

In the post-GFC economy, Datamonitor senior analyst Andrew Haslip believes that Australian savers are keen to balance high interest rates and security for their investments.

"For those able to lock away their savings for longer periods, fixed-income products were the most popular assets in 2010," Haslip says.

In 2010, more than one-third of Australian savers decided to increase their investments in these products, which includes high interest savings accounts and term deposits.

Which is better?
At the time of writing, the highest rate for online savings accounts is 7 percent by Bankwest, while the highest-earning 90-day term deposits feature rates up to 5.75 percent by Heritage Building Society for a balance of $5000.

But if we look at the long-term, two-year term deposits win the rate race with 6.50 percent by RaboDirect. The good thing about this is that you are guaranteed this rate for the length of your investment, in case interest rates decrease in the near future.

On the positive side, savings accounts can reward you with interest increases when rates are on the rise, boosting your savings potential. However, there are usually certain conditions to be met if you have your eyes on the highest rates. For example, Bankwest's Regular

Saver account at 7 percent requires you to top up your account with $50 to $500 per month with no withdrawals and it has to be linked to a Bankwest transaction account to be eligible.

Term deposits skip the hassles by being relatively low maintenance -; simply wait for your investment to mature and decide whether to withdraw or roll it over. The downside to this that if you need your funds urgently, you will have to pay penalty fees or sacrifice your high rates to withdraw.

Savings products can seem as similar as "po-tay-toes" and "po-tah-tos", so whether you prefer high-interest term deposits or online savings accounts, compare both at RateCity to see which product is best for your money.

Related term deposit links

• Fixed Term Deposits
• Long Term Deposits
• Short Term Deposits
• Do the major four banks always offer the best term deposit deals?
• Suncorp Bank Term Deposits

See all Term Deposit News and Features