If you’re saving for a goal, such as buying a home or paying off debts, there are a few options to consider. Two of the most popular are high interest savings accounts and term deposits.
The differences between a savings account and a term deposit
With a term deposit vs savings you’re able to lock away your money for an agreed period of time (the ‘term’), so it cannot be added to, withdrawn or touched until the end of the term. In return, you receive a guaranteed interest rate for the term.
You can usually choose from short-term and long-term terms, and redeemable or non-redeemable term deposits. Some offer higher rates than others, so it’s important to shop around for the best deal.
Term deposits don’t keep up with inflation
While a term deposit may pay a higher interest rate than a traditional savings account, it won’t grow to match prices over the term. In other words, if the rate on your fixed deposit is 2% and inflation is 2.5% in a given year, you won’t be earning enough to make up for it.
Term deposits are also often taxable, so it’s important to check your tax situation before investing.
Depending on your goals, you can also invest in other products such as shares or mutual funds. These are typically riskier, but can provide a higher return than term deposits. However, you’ll need to weigh up the risk factors and decide whether it is right for you.
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