Term deposits offer certainty and savings accounts offer flexibility for the saver. Here are some of the common features and benefits of each.
Putting your money into a savings account, or in the alternative, a term deposit, are two common methods of saving.
Working out whether either of these options are right for you depends on your personal and financial circumstances, as well as your saving goals.
For example, a separate savings account where your money is readily accessible might be useful for a short-term goal. A term deposit, where your money may be tied up for a longer period of time in return for higher interest, could be a more suitable option for a longer-term goal.
You can use the handy AMP calculator to compare savings accounts and term deposit rates over different financial amounts and timeframes.
Term deposits work by locking your money away for a certain timeframe (or ‘term’) in exchange for a fixed interest rate return at the end of that term. A general rule of thumb is the longer the term, the higher the interest rate. Terms vary, but usually range from as short as one month to as long as five years.
They’re worth considering if you’re looking to get an exact amount by a certain date, and don’t need to access the money before maturity.
- The return on term deposits carries more certainty than most savings accounts, as the interest rate is guaranteed.
- Usually these accounts come with no set-up fee. They often offer a higher rate of return to compensate for your money being out of reach for the entire duration of your term.
- They’re a set-and-forget type of investment, so you don’t need to worry about fluctuations in the cash rate.
Term deposits give you the assurance that you’ll know what you’ll get in return if you leave your money in for the full term. It also means if interest rates fall during that time, you’re likely to do relatively well with a locked-in rate.
- If the cash rate rises, you won’t be able to obtain the benefit of that increase for your term deposit.
- Your money is locked away for the full term.
- You’ll have to give notice to access it early, usually around 31 days.
- You’ll have to pay a penalty fee or earn less interest if you take your money out before the end of the term.
- A minimum initial deposit is required, which can vary widely.
- There’s no option to top up funds once you’ve opened a term deposit.
Interest rates on term deposits
With a term deposit, the length of time of the deposit account has a corresponding interest rate. You can choose the length of time you want the account for, and the amount you want to deposit based on your needs.
Find out more about the term deposit rates and features offered by AMP Bank.
When should I open a term deposit?
Term deposits can be useful when you’re looking for certainty about what rate of interest your money will earn. So, if your goal is to buy a vehicle but you want to wait until the end of the next financial year to grab a bargain in sales, you might plan for a term deposit that matures around then.
Savings accounts are more flexible than term deposits. Accordingly, a savings account might be more attractive if accessing your money at short notice is important.
- Add or withdraw funds at any time.
- May be able to link to an everyday transaction account.
- Interest rates may rise, giving you more for your money.
Some banks offer bonus interest rates, often called ‘honeymoon’ rates, to new customers. You may get a higher rate for a number of months, or a similar financial incentive, after which your funds move to the standard variable interest rate.
A savings account can be useful when you want to put your money away and have it earn some interest with the peace of mind that you can also access your funds as and when you need to.
- Interest rates may fall, giving you less than you expected at the outset.
- If you withdraw funds you may lose interest for that month, or whatever length of time applies to your account.
- You may be required to make minimum monthly deposits to earn interest.
- You may need to maintain a certain balance to avoid any potential fees or loss of interest rate benefits.
Some savings accounts limit your ability to access your money to help you avoid dipping into your savings. For instance, savings accounts generally don’t come with debit cards or ATM access, so this may be something you want to know.
When should I open a savings account?
There are a number of things to consider:
- fees charged,
- interest rates,
- how accessible your money is,
- whether you can set up an automatic direct debit, and
- whether there’s a minimum amount you need to deposit each month.
There’s a variety of savings accounts in the market so use this checklist to help find the right savings account for your situation.
Interest rates on savings accounts
Standard savings accounts usually offer low fees and access to your money, but you may get a lower interest rate compared to a term deposit. Interest is worked out as a percentage of the money you have in your savings account.
You can work out the interest by taking the bank’s current interest rate and applying it to your balance with the frequency applied to the account. This is usually daily, weekly or monthly.
As the name suggests, high interest savings accounts typically have higher interest rates, but there may be penalties for withdrawing your money before a set period of time has passed, or you don’t meet ongoing minimum deposit requirements.
Find out more about the savings account rates and features offered by AMP Bank.
How fees compare
Term deposits usually come with no set-up fee. However, if you need to withdraw your money before the maturity date, you’ll likely have to give notice in advance of your withdrawal and pay a fee or earn less interest.
Some savings accounts attract set-up fees and may also include anything from monthly account keeping fees to withdrawal fees.
So, when it comes to comparing accounts, make sure you’re across any potential fees or charges your provider may apply to your account.
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This information is provided by AWM Services Pty Ltd (ABN 15 139 353 496), is general in nature only and hasn’t taken your circumstances into account. Before deciding what’s right for you, and making a decision about the products, it’s important to consider your particular circumstances and read the relevant product disclosure statements or terms and conditions available from AMP at amp.com.au or by calling 131 267.
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