Term Deposits or Savings Accounts: Which Suits You?
For people seeking to find a safe shelter for their money in Australia, there are two ways to do so. One can either go with the term deposit or with savings account. While both are rather safe solutions, the difference between them lies in many aspects. In particular, the choice of which one to opt for would be largely dependent upon your financial targets, expenditure pattern, and flexibility in accessing funds. In this guide, we will try to provide some insights about these two banking products and make it easier for you to choose the right one.
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Term Deposit Explained
To put it simply, it represents the act of putting money into the account on certain conditions. For instance, you deposit the money to use them in five years. As for the interest rate, it is fixed throughout the whole period. In other words, it does not depend upon the Reserve Bank of Australia cash rate and market performance. It is quite clear for the depositor how much will be earned from the investment by the end of the period.
Nevertheless, it cannot be withdrawn earlier than the agreed upon term expires. Otherwise, there will be some charges or reduced interest earned on the deposit.
Savings Account Overview
Unlike term deposit, savings account allows withdrawing funds whenever needed. There may be additional conditions such as the minimum balance in the account. However, if these are met, the interest rate is applied. Unlike the deposit, it is variable meaning that it might change according to different factors (interest rate of the bank). The good news is that there are high-interest savings accounts allowing getting bonuses on deposit for meeting certain criteria. What is great about savings account is the total liquidity. It allows using any money in case of unforeseen expenses.
Term Deposit or Savings Account: Who Are They for?
Term deposit would suit those who have a huge amount of cash and wish to keep it in such an account. In fact, it helps not to get distracted with spending the money in any situation. It is particularly useful for people who want to save for some future event (for instance, wedding or putting aside money for the house after two years). It is a perfect solution for conservative savers who prefer stability and are ready to receive guaranteed benefits from the transaction.
Savings Account: Pros and Cons
As already mentioned above, the main benefit of a savings account is its liquidity. The possibility to deposit funds in small quantities during several months or years seems very appealing. It is also the best way to accumulate money when you plan to withdraw them soon. Those people who are actively engaged in budgeting and try to save a part of their weekly salary will enjoy working with savings accounts. Use services like ING to work out your budget and get started.
Summary
All in all, the choice between term deposit and savings account is rather complicated since each one offers something special. It does not mean that you should necessarily select only one of these solutions. In practice, people manage to combine both in order to maximise earnings. It might seem that savings account provides greater liquidity and freedom of actions. However, one might use term deposit as well and make sure that the money saved will bring benefits to you in the future!
