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Term deposits vs high-interest savings accounts – what’s the difference?

27 October 2022
• 4 minute read
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Term deposits and savings accounts are both great options for earning interest on your savings but choosing the right one depends on your priorities. Are you simply looking for the highest rate of interest possible? Or do you need the flexibility to access your money at any time? In this piece, we take a look at the differences between the two so you can make an informed decision.

How do term deposits work?

A term deposit involves you locking away a sum of money for an agreed period of time, usually between one month and five years. The rate of interest you receive is fixed and depends on the length of the term.

Generally speaking, once you get to the six-month mark, the rate is comparable to the best you can expect from a high-interest savings account, and comfortably exceeds it from a year onwards. So, if earning the highest rate of interest possible is important to you, a term deposit longer than six months could be the way to go.

This is conditional, however, on you not touching your money for the duration of the term. If you need to access your funds before then (which your lender may or may not allow), an early withdrawal interest adjustment will likely apply.

To see what interest rate you might get with a Great Southern Bank Term Deposit, check out our online calculator.

How do high-interest savings accounts work?

A high-interest savings account offers a better rate of interest than a standard transaction account. Some even offer bonus interest if certain conditions are met.

Certainty vs flexibility

Deciding between a term deposit or a high-interest savings account comes down to what’s important to you. Term deposits are great for those who value certainty and security. Because the interest rate is fixed, you know exactly what the return will be at maturity of the term. Incidentally, you don’t necessarily need to wait until the term matures to receive interest. Some providers, including Great Southern Bank, allow for interest to be paid monthly, although this is usually at a slightly lower rate.

Not only that, your investment is backed by a government guarantee up to the value of $250k. This means you won’t lose your money if your term deposit provider goes bankrupt.

But this certainty comes at the expense of flexibility. Not only can you not get hold of your funds until the end of the term, you can’t add to them either.

This point shouldn’t be overlooked because it’s possible to build some serious savings momentum if you pair up a high-interest savings account with clever tools like The Boost and The Vault.  For this reason, a high-interest savings account will more often than not be a better choice for those saving for a home deposit.

Making the right decision

Generally speaking, term deposits are best for people with a lump sum already saved that they won’t need to touch for a while. If you opt for a term of a year or more, you can ‘set and forget’, safe in the knowledge that your investment is earning more than if it were in a savings account.

High-interest savings account, by contrast, are more suitable for those who are actively saving but might need to make the odd withdrawal here and there. They also make more sense for people who have immediate plans for their savings, such as buying a home.

While there are pros and cons to each, one thing you don’t have to worry about with Great Southern Bank Term Deposits or Savings Accounts is fees. Other financial institutions may vary but we don’t charge extra fees for either product.

Important Information

Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959. AFSL and Australian Credit Licence 238317. Conditions, fees and charges apply. This is general information and does not take into account your objectives, financial situation or needs.  Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information

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