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Get better interest rates: variable savings accounts vs term deposits

Jodie Humphries avatar
Jodie Humphries
- 3 min read
Get better interest rates: variable savings accounts vs term deposits

Two of the most common methods of saving money used by Aussies include putting money in a savings account with a variable interest rate, or a term deposit. Savings accounts offer flexibility, while term deposits offer certainty. Hence, determining which of these options is the right one for you entirely depends on your saving goals, along with your personal and financial circumstances. 

For example, in a savings account, the money you save is accessible whenever you need it; hence, they are more suited for short-term goals. A term deposit usually ties up your money for a longer period of time; hence, it is more suitable for a long-term goal. 

What is a variable interest rate savings account?

Most Aussies use a savings account as a secure way to grow their savings, as there are a range of options available, which have slightly different features.

Moreover, not only do you get higher variable interest rates for savings accounts than transaction accounts, but your money is also easily accessible to you whenever you need it. But, it’s important to note that some banks may provide added incentives if you deposit regularly and disincentives when you withdraw funds from the account. 

The major difference between variable interest rate savings accounts and term deposits is that the interest rate is not fixed, so you can expect changes in your return depending on the official cash rate.

What is a term deposit?

Term deposits are another way to grow your savings as it locks away your money for a pre-defined time frame in exchange for a fixed interest rate. Most banks offer a higher interest rate in return for a longer-term. The terms offered vary depending on the bank you choose; however, the usual range is from one month to five years. 

Term deposits are preferred over savings accounts with a standard variable interest rate if you’re looking to get an exact amount by a specific date, and you don’t need to access the money before maturity.

What is the difference between savings accounts and term deposits? 

  • Term:You can grow your savings in a savings account indefinitely. On the other hand, you need to determine the length of time you want to invest your funds in a term deposit. 
  • Minimum opening deposit: Usually, a minimum deposit is not required while opening a savings account. For a term deposit, however, you’ll need to invest at least $5,000 or $10,000 depending on the bank you choose. 
  • Fees:Most banks don’t charge any fees to open a savings account; however, you might have to pay set-up and maintenance fees at some banks. For term deposits, there are no fees taken, but, if you wish to withdraw your funds before maturity, you would have to bear fines. 
  • Payment cycle: While you can add funds to your savings account indefinitely, some banks may set a maximum limit on the amount you can earn an interest rate on. Additional payments cannot be made to a term deposit. 
  • Withdrawing funds: You can usually withdraw your money at any time when it comes to savings accounts. However, as your money is locked away for a set duration in a term deposit, you’ll have to bear a fine if you withdraw the funds before maturity. 
  • Interest rates: Usually, variable interest rates are applied for savings accounts, which means that it can change at any time. Term deposits, on the other hand, come with a fixed interest rate which will not change during the term of your investment. 


This article is over two years old, last updated on February 2, 2021. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent savings accounts articles.

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Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.