High Interest Account Vs Term Deposit

If you have some spare cash that you need to park for a few months, what are some of the things you can do with it?

If you need access to the money within a year you will most likely be looking at a high interest savings account or a term deposit. They of course aren't the only options of where to invest your money but they are the focus of this article.

Going back many years, a term deposit would have been a clear choice for many people, but with the introduction of high interest online savings accounts the choice is less straightforward.

Before we get into looking at the benefits and drawbacks of these different options, it is important to understand exactly what these two products are.

Term Deposits Explained

A term deposit is a type of deposit offered by a bank where your money is locked in for a certain period of time at a fixed interest rate. In return for locking in your money, the bank will generally pay you a higher rate of interest in comparison to a standard savings account. But check the current rates to confirm that is the case.

Terms deposits are offered in terms anywhere from one month through to five years or more.

At the end of the term your funds will be released along with the interest you have earned during the period. In most cases you can release a term deposit earlier, however you will lose some or all of the interest earned.

High Interest Accounts Explained

High interest savings accounts grew in popularity with the mainstream use of internet banking.

Initially these accounts were online only accounts, and in return for transacting online rather than through the branch network the bank would offer you a higher interest rate.

These types of accounts are generally still restricted to phone and internet banking, with the only form of allowed transaction being electronic. Some accounts also have minimum balances that must be maintained in order to receive the higher interest rate.

Comparing Accounts

When comparing high interest accounts and term deposits there are many factors to consider, but we'll look at two. These factors are the flexibility offered by the accounts and their performance.


There is no doubt that a high interest savings account will offer a greater level of flexibility when compared to a term deposit.

Although your money in a high interest savings account will generally only be available by phone or internet banking, meaning that you have to transfer it into a standard account before you can access it, this is still more flexible than a term deposit where you money is locked in.

You can still access funds from a term deposit before the term is up, however there will be forms to complete and you will lose some or all of the interest you have earned.


Term deposit rates and high interest savings accounts rates fluctuate based on current interest rates, the bank's view of the interest rate outlook (near and far) which makes it all the more important to shop around. Past performance isn't an indicator of future performance, so check out your options and decide what is going to work for you.

The Winner

The best option for you will really depend on your needs and objectives.

If you are absolutely certain that you won’t need access to your money for a certain period of time and you are happy with the interest rate, then locking it into a suitable term deposit could be fine for you.

But if you are not certain of your needs for cash in the short term, then a high interest savings account will give you greater flexibility, and at least you will be earning some interest during that period.

As with many financial products there is no black and white answer that covers every person in every situation. You need to consider your own situation before making a decision on how to store your money.

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