Get better interest rates: variable savings accounts vs term deposits

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. 

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 


Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.