Is a term deposit better than a savings account?

A high-interest savings account is a bank account designed to help your savings grow faster. It generally offers a higher interest rate compared to other trading accounts. While a term deposit is a savings product in which your money is invested for a fixed term at a fixed interest rate. You can earn more with high FD interest rates if you invest in a fixed deposit.

Even with a short-term deposit of a few months, you can earn more than you would if you left your money in a savings account. It can also help you combat inflation, which erodes the purchasing power of your money, as it can accelerate the growth of your funds. To look at this simply, a separate savings account where your money can be easily accessed could be useful for a short-term goal. A term deposit, in which your money can remain immobilized for a longer period of time in exchange for generally higher interest rates, may be a better option for a long-term goal.

If you like having liquid access to your funds and want to control your finances while saving, you can opt for a savings account. Alternatively, long-term savings goals where you want to eliminate the temptation to access your money are likely to be better suited to a term deposit. Additional deposits are also not available with most term deposits, so savings accounts clearly win in terms of flexibility. A term deposit is a fixed-term investment that includes the deposit of money into an account at a financial institution.

Two of the most basic ways to get a return on your money are savings accounts and term deposits. Patrick Nolan, chief deposit officer at Judo Bank, says a term deposit could be considered a “simple and secure” alternative. Therefore, withdrawing your fixed-term deposit in half could mean that you would only earn an interest rate of 40% of the advertised interest rate. They often offer a higher rate of return to compensate for their money being out of reach for the entire term of their term of office.

It's important to ensure that the alternative rate is high enough to more than offset the original term deposit rate plus the cost of the penalty. Term deposits and savings accounts are very similar, but different, products, and both do better than the other under certain circumstances. Sometimes, if interest rates have risen sharply, it may be worthwhile for a customer to close the deposit early, assume the early withdrawal penalty, and reinvest the funds elsewhere at a higher rate. When buying a term deposit, the investor must understand that they can only withdraw their funds after the term ends.

You'll find that the larger the investment, the greater the difference between savings accounts and term deposits. The return on term deposits is more certain than most savings accounts, since the interest rate is guaranteed. You can use the handy AMP calculator to compare savings account rates and term deposits in different financial amounts and terms. If you're looking for flexibility, look for another option, because term deposits are a fairly inflexible product.

A term deposit might look good if market rates fall, but not so much if they're rising and your savings are falling behind. A term deposit is a product that blocks a sum of money with a fixed interest rate for a fixed period of time.

Liam Anderson
Liam Anderson

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