Savings accounts vs term deposits

What is a savings account?

A savings account is a type of bank account that offers interest on your balance to help it grow. The interest rate is variable, meaning it can change at any time if the bank chooses to increase or lower the rate. There are several different types of savings accounts, but the ones with the highest interest rates usually come with conditions to meet such as a monthly deposit requirement.

Savings accounts don't come with direct debit card access, but you can easily and instantly access your money by transferring it to your bank account.

What is a term deposit?

A term deposit also offers interest on your balance, but this interest rate is fixed meaning it won't change. However, unlike a savings account which you can easily access, the money in your term deposit is locked away for the duration of the term you choose.

You can choose a term deposit length from 1 month to 5 years, and how much money you want to deposit. Once you've opened the term deposit there are no ongoing conditions to meet, and you can choose how often to receive your interest payments.

Because the interest rate is fixed, you can calculate exactly how much interest you'll earn over the duration of your term when you open it.

Key differences between savings accounts and term deposits

TypeFeatureSavings accountTerm deposit

Savings account vs term deposit interest

Savings accounts usually offer two different rates; a bonus rate which is the maximum rate you'll get when all conditions are met, and a base rate which is what you'll earn even when no conditions are met.

The bonus rate on a savings account is often higher than what you'll find with a term deposit, but that's because there are usually monthly conditions to meet to earn it. The base rate, on the other hand, is usually extremely low.

Savings accounts pay compound interest, with interest calculated on your daily balance and paid monthly. This means you'll earn interest on your interest, helping your balance grow quicker. Term deposits pay simple interest - your interest isn't re-invested into the account to earn more interest.

Because term deposits offer fixed rates, when rates are going down (like they are currently as the RBA cuts the cash rate in 2025), a term deposit is a good way to lock in a higher rate before it falls.

Which product earns you more interest?

Savings accounts and term deposits offer similar interest rates, although you can usually find a higher rate with a bonus savings account.

At the moment the best savings account rates are around 5% p.a., while the best term deposit rates are a bit lower at around 4.75% p.a. For longer terms of 2+ years, the best rates are even lower at around 4% p.a.

Let's look at a fictional example of how compound interest can help you earn more money with a savings account compared to a term deposit.

But remember, most high interest savings accounts will require you to add money into the account each month to get the bonus rate (this is usually at least $200, but can be as much as $2,000).

Using the same example as above, but adding money into your savings each month, will earn you even more interest with a savings account.

Our expert says

"Compounding is like a magic trick that makes your money grow faster, or your debt grow bigger. Either way, it means that small, consistent efforts – even as little as paying $20 extra into your mortgage, super or savings each week – can make a big impact down the track."

Sarah Megginson

Personal finance expert + media spokesperson

Savings account vs term deposit: Which is safer?

Both savings accounts and term deposits are incredibly low-risk, safe options for your cash. In fact, both are covered under the Financial Claims Scheme. This means that your deposit up to $250,000 in either a savings account or term deposit with an Australian bank is protected by the government.

You can't lose money with either one of these accounts. The main risks are instead around the interest rates and how much you can earn.

With a savings account, if you fail to meet the conditions one month you'll only earn the variable base rate which is often extremely low - or sometimes even 0% p.a. Also, as the rates are variable, your interest rate is likely going to drop when interest rates are going down.

As term deposit rates are fixed you won't have to worry about your rate dropping when interest rates go down - but the opposite is true. If you've got a fixed rate when rates in the market are rising, you'll be stuck with the lower rate until your term ends.

A savings account might suit you better if:

• You want to have easy access to the money
• You are happy to meet a monthly deposit requirement
• You're looking for the highest rate available
• You want to take advantage of compound interest
• You have a smaller starting balance that you want to gradually grow

A term deposit might suit you better if:

• You want a set-and-forget option
• You don't want to deposit more money each month
• You have a larger deposit amount to invest
• You're confident you won't need to access the money any time soon

Our expert says

"If you're going to open a term deposit, just make sure to keep enough money aside in a regular bank account or savings account to cover any large, unexpected expenses that may pop up.

If you don't have the cash to cover it you may need to break your term deposit early, which would mean you'll have to give up some (or all!) of your interest. "

Alison Banney

Editorial Manager, Money

Frequently asked questions

• What are the benefits of a term deposit?

  A term deposit offers a fixed interest rate and guaranteed returns. It's a very safe option for your cash as you can't lose money.

• Is a savings account safer than a term deposit?

  Savings accounts and term deposits are both safe products that are both covered under the Financial Claims Scheme.

• Can you lose money in a term deposit?

  No, you can't lose money in a term deposit. If you need to break your term deposit early you might lose some of your interest - but you won't lose your initial deposit.

• How often can I withdraw from a savings account?

  You can withdraw from your savings account at any time. However, some savings accounts require you to restrict withdrawals in order to earn bonus interest.

• What happens when a term deposit matures?

  When a term deposit matures you'll receive your initial deposit back plus the interest you've earned. You are then free to do what you like with the money - including investing it into another term deposit right away.

Written by

Alison Banney

Editorial Manager, Money

Alison is an editor at Finder and a personal finance journalist with over 10 years of experience, having contributed to major financial institutions and publications such as Westpac, Money Magazine, and Yahoo Finance. She is frequently quoted in media outlets like SmartCompany and SBS, offering expert insights on superannuation and money management. Alison holds a Bachelor of Communications in Public Relations and Journalism from the University of Newcastle, and has earned three ASIC RG146 certifications in superannuation, securities and managed investments and general financial advice, ensuring her expertise is fully aligned with ASIC standards. See full bio

Alison's expertise

Alison has written 660 Finder guides across topics including:

• Superannuation
• Savings accounts, bank accounts and term deposits
• Budgeting and money-saving hacks
• Managing the cost of living