Your choice: savings account or term deposit

When deciding where to park your savings, two popular low-risk options are high-interest savings accounts and term deposits. 

Both belong to the cash asset class, which is considered one of the safest investment types, but they serve different financial goals. 

A high-interest savings account offers flexibility and accessibility. You can deposit and withdraw funds at any time, making it ideal for short-term goals such as building an emergency fund, saving for a holiday, or paying down debt. 

These accounts often come with bonus interest rates if certain conditions are met, such as regular deposits or limited withdrawals. However, the interest rate is variable, meaning it can change depending on market conditions. 

In contrast, a term deposit locks your money away for a fixed period, ranging from a few months to several years, at a guaranteed interest rate. This makes it a suitable option for medium-term goals, such as saving for a home renovation or a major purchase. 

Because the rate is fixed, your returns are protected from market fluctuations. However, you cannot access your funds during the term without incurring a financial penalty. 

Both account types are covered by the Australian Government’s Financial Claims Scheme, which guarantees deposits up to $250,000 per account holder per institution. This adds an extra layer of security for your savings. 

When planning your financial strategy, consider your goals:

• Short-term goals (within a year): A high-interest savings account offers liquidity and ease of access. 

• Medium-term goals (1–5 years): A term deposit provides stability and potentially higher returns. 

• Long-term goals (5+ years): You may want to explore higher-growth assets such as shares or property, as cash-based products tend to lag behind inflation over time. 

Ultimately, the right choice depends on your personal circumstances, risk tolerance, and financial objectives. Many people find that a combination of both account types works well – using savings accounts for accessible funds and term deposits for locked-in returns. 

Before making any decisions, it’s wise to consult a financial adviser who can help tailor your investment strategy to your needs. Tools like savings calculators and interest estimators can also help you forecast your potential earnings and make informed choices.