Savings Account vs Term Deposit Australia — Which Is Better?
This article provides general information only and does not constitute financial advice. For advice tailored to your situation, consult a licensed financial adviser. Learn more.
Contents
A savings account gives you flexible access to your money while earning interest. A term deposit locks your money away for a fixed period at a fixed rate. Both are safe, APRA-protected ways to earn interest on cash — but they suit different situations.
Key Takeaways
- Savings accounts offer flexible access; rates are variable and conditional
- Term deposits lock money away for a fixed term (1 month to 5 years) at a guaranteed fixed rate
- Term deposits can offer better certainty when rates are high and you expect them to fall
- Savings accounts are better when you may need to access your money or when bonus rates exceed term deposit rates
- Interest from both is included in your assessable income and taxed at your marginal rate
Savings Accounts — Key Features
| Feature | Details |
|---|---|
| Rate type | Variable — changes with RBA cash rate and bank decisions |
| Conditions | Bonus rate typically requires monthly deposits or transactions |
| Access | Withdraw anytime (no penalty) |
| Minimum balance | Usually none |
| Interest paid | Monthly |
| Deposit protection | Up to $250,000 per institution (FCS) |
High-rate savings accounts from banks like ING, Macquarie, and Ubank offer competitive conditional rates. But if you miss conditions one month, you fall back to the low base rate.
Term Deposits — Key Features
| Feature | Details |
|---|---|
| Rate type | Fixed for the chosen term |
| Conditions | None — rate is locked in at opening |
| Access | Generally locked until maturity; early withdrawal incurs a penalty (interest reduction) |
| Minimum balance | Typically $1,000–$5,000 |
| Terms | 1 month to 5 years; most popular terms are 3, 6, and 12 months |
| Interest paid | At maturity (for short terms) or annually (for long terms) |
| Deposit protection | Up to $250,000 per institution (FCS) |
Term deposit rates tend to be more competitive with savings account rates when the RBA has raised rates, as banks compete for fixed-term funding.
When a Term Deposit Makes Sense
- You want certainty: you lock in a rate and know exactly what you’ll earn
- You expect rates to fall: if the RBA is cutting rates, locking in a higher rate now protects your return
- You are disciplined about not touching the money: the lock-in period removes the temptation to spend
- You are saving for a specific future date: e.g., saving for a car purchase in 12 months
- You want to avoid the complexity of bonus rate conditions
When a Savings Account Makes Sense
- You may need access to the money: emergencies, opportunities, changing goals
- Bonus rates exceed term deposit rates: during rate rise cycles, competitive savings accounts can match or beat term deposits
- You are contributing regularly: you can keep depositing into a savings account; a term deposit has a fixed opening balance
- You want monthly interest credited to build up your balance faster
Comparing the Returns
Assume $50,000 invested for 12 months:
| Option | Rate (illustrative) | Return |
|---|---|---|
| Term deposit (12-month, fixed) | 4.50% p.a. | ~$2,250 |
| High-rate savings (conditional, met every month) | 5.00% p.a. | ~$2,500 |
| High-rate savings (conditions missed 3 months) | Blended ~3.8% | ~$1,900 |
| Big Four savings account | 2.00% p.a. | ~$1,000 |
Figures are illustrative — actual rates vary. Savings account returns depend on consistently meeting conditions.
The comparison shows that a savings account with conditions met every month can outperform a term deposit — but if you miss conditions, you may earn less.
Tax Treatment
Interest from both savings accounts and term deposits is included in your assessable income and taxed at your marginal income tax rate plus Medicare levy.
- Interest is taxable in the income year it is received or credited
- For term deposits maturing in a future financial year, interest is generally taxable when paid at maturity (for most individual investors)
- If your total interest income is high, consider whether the investment income affects your tax bracket, Medicare Levy Surcharge threshold, or other income-tested benefits
Can You Have Both?
Yes. A common strategy is to keep an emergency fund (3–6 months of expenses) in a high-interest savings account for accessibility, and park additional savings in a term deposit to lock in a guaranteed return on funds you won’t need for a defined period.
FAQ
Can you lose money on a term deposit? No — term deposits at APRA-regulated banks are capital guaranteed and covered by the Financial Claims Scheme to $250,000. You will always receive your principal back plus the agreed interest, unless you break the deposit early (in which case interest is reduced, not the principal).
What happens when a term deposit matures? The bank will typically roll it over automatically for the same term at the current rate, or you can choose to withdraw, reinvest for a different term, or transfer to a savings account. Set a reminder to review before automatic rollover.
Are term deposit rates negotiable? For large amounts (typically $100,000+), some banks will negotiate rates above their advertised rates, especially at the end of a quarter when banks seek to meet funding targets.
For advice on the right savings strategy for your situation, speak with a licensed financial adviser. Find one via MoneySmart.