Comparison of Savings Accounts Vs. Term Deposits

We've put together a simple comparison of Term Deposits and High Interest Savings Accounts to compare features and benefits. 

Term Deposits

A fixed interest rate and fixed term of deposit. A term deposit is a fixed interest account where the depositor / investor gets certainty over the rate of return for their cash investment. The investor gets to:

• Fix the rate of interest
• Fix the term of the investment. 

The interest rates are published on term deposits are APRs (Annual Percentage Rates) which means that the rate is an annual amount. A term deposit of 6 months for $100,000 at a 6% interest rate will yield $3,000. 

Term deposits last for as little as 7 days and some even go to 10 years, with most capping out at 5 years. The larger the deposit and the longer the length of time, the better the return for the depositor. With a large amount of your money locked up for a long time in a term deposit, the bank / institution can then re-lend it to others at a higher margin for a longer period, hence they'll offer you higher rates for larger amounts and longer time frames.

For more information on term deposit accounts, check out of Guide to Term Deposits. To jump straight into comparing term deposit rates, you can Compare Term Deposits here. 

Savings Account - High Interest Savings Account

High interest savings accounts are variable accounts which offer high interest rates with no fixed term but may require certain requirements to be met for the highest interest rates to apply. High interest savings accounts are one of the few areas where banks have passed on the benefits of their branch reduction strategy and lower cost structures online to give depositors a change to earn high interest rates by self managing their accounts online. These accounts are relatively new and these high rates were not as readily available ten years ago when you relied on your local bank branch for everything. ING Direct were one of the key innovators in this area. 

The self management is key and the bank wants you to set up the account yourself and manage it online or over the phone with no / little branch access. You can transfer money online to your transaction accounts, but there is a lower cost structure for the bank and the benefits are passed to you, the depositor.

Many of the new high interest savings accounts offer a very attractive advertised interest range, but these rates are often made up of two parts - a standard rate and a bonus rate. 

• The standard rate is the everyday rate for the account.
• Bonus / promotional rates are based on meeting a minimum balance and minimum monthly payment requirement. Some banks have a low standard rate that is improved only with the bonus rate so make sure that you can meet the requirements or you won't get the rate that attracted you to the account.

For more infomration on savings accounts, check our Guide to Savings Acccounts. To jump straight into comparing savings accounts, you can Compare Savings Accounts here.