Whether you’re saving for a home deposit, a new car, a holiday or something else entirely, savings accounts and term deposits are both great options to help you reach your financial goals. Each is more suited to different purposes, so let’s take a look at the differences.
A term deposit is a type of savings account where you lock away an amount of money for a fixed period and receive a guaranteed interest rate.
A term deposit is great if you’re looking for a low risk, predictable savings option. A term deposit provides certainty around the interest you will receive.
Your savings are locked away for the duration of the fixed period you choose, between one month and five years, a term deposit offers certainty that your money will grow at a specified rate.
This fixed rate means your savings goal isn’t subject to interest rate drops. On the flip side, it isn’t going to attract any interest rate rises that occur during that period of time.
With a term deposit, you need to start with at least $1,000, sometimes $5,000, depending on the bank. Once the investment matures for the term you’ve chosen, you receive a reminder so you can instruct your bank what to do with the money next.
Having your money locked in for a period of time can be good to help you resist the temptation to withdraw money and spend it.
Aside from that, there usually aren’t any fees involved with a term deposit; and on average a term deposit will earn higher interest than an online savings account. The interest rates on term deposits vary with different banks, and with different term periods, so it’s worth looking around for the best deal.
If you need to access your money before the end of your chosen investment term, there are penalties involved, and often an interest adjustment and administration fees.
You can’t add any additional money to the term deposit while it is locked away.
When you’re considering a term deposit, look carefully for:
A savings account is a simple bank account that you can use to save money and earn interest on the money in your account, growing your initial deposit.
Some banks also offer a high interest savings account. This is a type of savings account that offers bonus interest if you make a deposit each month, and no withdrawals. Different financial institutions may have different intuitions so it helps to know how to compare and find the best high interest savings account.
There are a range of savings accounts available on the market. Some are online only, some offer higher interest if you deposit a minimum amount each month, and others have the freedom to withdraw money as you need it while others restrict withdrawals. The interest rates vary between these options, and the interest rates can ebb and flow with broader market rate changes.
A savings account can be a flexible savings option, particularly if you’re starting your savings plan from a lower amount or need easy access to it.
They have minimal or no fees, and no minimum deposit amount, which means you can deposit and access your money more easily.
It’s easier to access your money so there is more temptation.
Interest rates are variable which means that may go up or down.
When you’re considering a savings account, look carefully for:
There are pros and cons to both term deposits and savings accounts, and your decision is best made with your individual goals in mind.
Australian Unity has term deposits and savings accounts that can help you save towards your next goal.
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