Should you keep your savings at-call?

Shirley Liu 9 March 2016


In the current interest rate environment, are term deposits the best option for you?

Term deposits have traditionally offered higher rates than online savings accounts to compensate investors for their long term risk. However, the current economic climate and future outlook has meant that some online savings accounts now have better rates than those offered by term deposits.

Online savings savings accounts allow to access your money at-call without being charged fees. With a term deposit (fixed savings) you can’t withdraw your money until the maturity date unless you pay a penalty. Before you decide where to park your cash, it’s good to look at the features of each option so you can weigh up the pros and cons and make an informed decision.

What are the typical features of a term deposit?

Payment frequency

This refers to the time of interest calculation. For long-term investments, interest is generally paid annually. Some other options are:

  • Annually: paid at the close of 12 months.
  • Semi-annually: you receive this at the close of 6 months.
  • Quarterly: your interest is determined and paid after three months.
  • Monthly: once the month ends, you'll get your interest.
  • Fortnightly: for each fortnight, you'll receive interest.
  • Weekly: receive weekly interest.
  • Maturity: you only receive the interest after it has reached the settlement date known as the maturity date.

Compound interest

If the interest for your term deposit is added to the balance regularly, you'll benefit from compound interest, which means you'll earn more. If you only get interest at maturity, you won't have that benefit.

Single statement

For those with multiple accounts or term deposits, you may have the option of having one statement to cover everything rather than one for each. This may make it easier to manage all of your accounts.

Partial withdrawal permitted

Some financial institutions allow you access your money in a term deposit without a penalty. Most, however, will charge a fee or interest penalty if you withdraw early.

Auto rollover

If you have this feature, your term deposit, upon reaching maturity, will roll right into a new account. If you don't have this option, you’ll have to inform your bank about what you will do with the money when the term deposit matures. You can transfer it into another fixed term or collect it.

Interest paid to different accounts

Depending on your institution, you could transfer your term deposit into a transaction account without any hassle once it reaches maturity.

What are the features of online savings accounts?

Online savings accounts can be accessed via the internet or through phone banking, rather than via a branch. Some newer brands only offer online services, while established banks may offer better interest rates for online-only accounts than for those which can also be managed in a conventional branch.

Often these accounts have a minimum balance requirement, and some pay bonus interest if you deposit a minimum amount each month. There are some accounts that pay tiered interest rates (with better rates for higher amounts).

Online savings accounts sometimes have introductory and promotional rates. Normally after a certain period of time, the promotional and introductory rates revert back to a base rate.

Some accounts only let you withdraw money a few times a month without a penalty and others can let you withdraw at-call.

So should I keep my savings at-call?

The best way to answer this question is to compare the features of both a term deposit and online savings accounts. Once you do that, work out which situation will best suit your personal circumstances.

Let's take a look at the case study below:

* Rates correct up to 7 March 2016 and are used purely as examples. 

ME Online Savings AccountBOQ Term Deposit (7 months)
Interest rate (p.a.)3.60%3.05%
Rate conditions
  • Ongoing
  • Variable with conditions
  • Applies up to $250,000
  • Fixed
  • Investment amount $5,000 - $249,999
FlexibilityAvailable at-call without penaltyUnavailable at-call (penalty applies if you wish to withdraw prior to maturity)
Investment amount$5,000$5,000
Interest earned $104.23 $88.40

In this particular example, the saving account would receive $15.83 more in interest, and also offer more flexibility.

Make sure you're aware of the terms and conditions for any term deposit or a savings account. The promotional rate for an online savings account may look attractive, but remember that these will revert to a base rate once that period is over. Term deposit rates vary, and you need to be confident you won't require that money for an emergency.

Compare the features of term deposits and online savings accounts carefully and see what’s the best option for you.

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