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Savings account or term deposit? Things to consider for 2023

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Looking to upgrade your savings in 2023? We take a look at whether term deposits or savings accounts may serve you better.

Sponsored by Newcastle Permanent. Earn 4.10% interest p.a. on a 12-month term deposit*. Minimum deposit $1,000, interest paid on maturity. T&Cs apply.

When you're trying to save some extra cash, 2 types of accounts tend to come to the forefront – savings accounts and term deposits.

Both are popular options for trying to grow your savings and wealth. They don't carry the same risk associated with other types of investments and they are typically low-maintenance.

However, savings accounts and term deposits aren't interchangeable. Let's break down some of the big considerations when you're picking between them.

πŸ‘‹ Hey there! We've partnered with Newcastle Permanent for this article, so we'll be using some examples of its term deposit product throughout. However, you should always do your own research and make sure to always read the product disclosure statement (PDS) and target market determination (TMD) to see if a product suits your needs.

Saving cash

1. What savings goal are you pursuing?

When you're looking at different types of savings products, it's important to think about what sort of end goal you have in mind.

Term deposits can be useful when you're saving with a specific, large-scale goal. Property and cars are the most common touchstone but they can also be used for more general wealth building.

For example, you might be thinking in terms of building additional funds for your retirement but don't want to pursue riskier forms of investment.

This is one area where term deposits can offer additional security. Term deposits of up to $250,000 per person with Newcastle Permanent are guaranteed by the Australian government's Financial Claims Scheme to provide you with a level of protection.

However, if it's a smaller goal – such as a new TV or console – a regular savings account may be the better option. You'll retain greater liquidity (more on that in the next point) and you're able to chip away with small amounts regularly rather than waiting for a term deposit to mature.

2. How often do you need to access cash?

Many modern "savings" accounts are designed to have money regularly going in (on payday) and out (for everyday expenses). Although it's possible to earn interest on many of these accounts, many people don't really accrue it because of the way they use them.

You can usually add extra money to your savings account whenever you want and make a certain amount of withdrawals or transactions each month without incurring additional fees.

By contrast, term deposits are deliberately intended to restrict your access to cash so it can accrue interest more quickly and efficiently. You can't top it up after making the initial deposit – you'd need to create a separate term deposit for any additional funds.

Depending on the specific type of term deposit product your provider offers, your account is usually "locked" for the duration of the term deposit. If you want to withdraw funds or shut it down entirely, notice is typically required and you may lose some or all of your interest.

However, there isn't a single term that you have to opt for. For example, the Newcastle Permanent offers term deposit periods as short as 21 days or as long as 5 years.

If you're looking for a more secure option to stash a chunk of money away for an extended period, a term deposit is an option to consider.

But if you know you're going to dip into it every now and then, a savings account may be a better option for keeping cash within reach.

Rising interest rates

3. What's the current interest rate?

Savings accounts typically earn interest at a rate that's determined by the overall cash rate, set by the Reserve Bank of Australia (RBA).

As anyone who's had a savings account can attest over the last few years, that can be a bit of a wild ride.

By contrast, term deposits are set at a fixed interest rate.

To provide an example, Newcastle Permanent has a range of term offers and only requires a minimum deposit amount of $1,000. Depending on the term and amount, interest is paid at maturity or throughout the term.

Term deposit interest rates are also locked in. Whether the interest rate goes up or down over the life of the term deposit, you'll still earn the same interest. This has the benefit of shielding your funds against dips.

However, it also means that if the interest rate suddenly skyrockets, you won't be able to cash in either.

Some people choose to split their savings between term deposits and regular savings accounts to get the benefits of both.

However, everyone's financial needs are different. If you're unsure about what's best for you, it may be worth speaking to a professional.

4. What sort of fees are charged?

Fees vary for savings accounts. However, they're usually structured around the number of transactions you make each month, the amount of funds you deposit, attached cards, lines of credit and a range of other services.

Term deposits tend to be a bit lower-maintenance and their fees should reflect this accordingly.

For example, the Newcastle Permanent currently charges no annual or monthly account-keeping fees on term deposits.

Woman reviewing her account balance

5. What account features are included?

Savings account features vary widely depending on your provider, the specific type of account you have and the optional add-ons you take advantage of.

Term deposits tend to be "set-and-forget" compared to more everyday accounts but a good term deposit should still offer different features that you can access if and when necessary.

For example, a Newcastle Permanent term deposit features the ability for interest to be paid periodically or at maturity. You're also able to make deposits within 4 days of the account being opened as well as within 7 days before or after its maturity date.

It also features an app (or online banking) so you can check on your term deposit balance whenever you choose to.

Learn more about Newcastle Permanent term deposits

Name Product 4 Mths p.a. 5 Mths p.a. 6 Mths p.a. 7 Mths p.a. 12 Mths p.a. 24 Mths p.a.

$1,000 min. deposit
3.50%
3 Mths p.a. -3.50%
4 Mths p.a. -3.50%
5 Mths p.a. -3.50%
6 Mths p.a. -5.05%
7 Mths p.a.---3.80%
12 Mths p.a. 4.80%
24 Mths p.a. 4.80%
... this is invisible month..
3.50%
3.50%
5.05%
3.80%
4.80%
4.00%

$1,000 min. deposit
3.50%
3 Mths p.a. -3.50%
4 Mths p.a. -3.50%
5 Mths p.a. -3.50%
6 Mths p.a. -5.05%
7 Mths p.a.---3.80%
12 Mths p.a. 4.80%
24 Mths p.a. 4.80%
... this is invisible month..
3.50%
3.50%
5.05%
3.80%
4.80%
4.00%
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