Term Deposit vs Savings Account
Fixed rate and locked in versus flexible access and variable rate — how to choose.
The key difference
Term deposit
Lock your money for a fixed term — usually 1 month to 5 years — at a fixed interest rate. The rate won't change for the duration, but you can't access the funds without a penalty.
Savings account
Access your money at any time. The interest rate is variable — it can rise or fall with market conditions. Many accounts pay a bonus rate conditional on monthly requirements.
Side-by-side comparison
| Feature | Term deposit | Savings account |
|---|---|---|
| Rate type | Fixed for the term | Variable — can change any time |
| Access to funds | Locked — penalty for early withdrawal | Instant access |
| Best current rate | ~5.15% p.a. (Judo Bank, 12m) | 5.90% intro / 5.50% ongoing |
| Rate certainty | ✓ Guaranteed for term length | ✗ Can be cut at any time |
| Conditions | None — rate is automatic | Often requires deposits, purchases, balance growth |
| Government guarantee | ✓ Up to $250k per institution | ✓ Up to $250k per institution (ADIs only) |
| Best for | Known timeline, rate certainty, no temptation to spend | Flexible timeline, emergency fund, regular contributions |
When a term deposit makes more sense
- You have a known end date. Saving for a holiday in 12 months, a car purchase, or a home deposit with a fixed settlement date — a term deposit matches the timeline and locks in the return.
- You want to protect yourself from rate cuts. If you expect interest rates to fall, locking in today's rate for 12–24 months means your savings keep earning the higher rate even after the RBA cuts.
- You want to remove temptation. The early-exit penalty creates a psychological barrier. For disciplined saving toward a goal, that lock-in can be an advantage.
- You don't want to manage conditions. Term deposits have no monthly requirements — deposit once and earn the agreed rate automatically until maturity.
When a savings account makes more sense
- Your timeline is uncertain. If you might need the funds earlier than planned — for a property purchase, emergency, or opportunity — a savings account avoids break penalties.
- You're contributing regularly. Term deposits are typically opened with a lump sum and can't receive additional deposits during the term. Savings accounts are ideal for regular contributions.
- Current savings rates are competitive. Right now, the best savings account rates (5.50% ongoing with ING or Suncorp) match or beat most term deposit rates — without the lock-in.
- You want an emergency fund. Emergency funds need to be accessible. A term deposit is not suitable for this purpose.
Current best rates
Top savings accounts
- Rabobank HISA — 5.90% intro (4m), 4.00% ongoing, no conditions
- ubank Save — 5.85% intro, 5.10% ongoing
- ING Savings Maximiser — 5.50% p.a. with conditions
- Suncorp Growth Saver — 5.50% p.a. with conditions
FAQs
What is the difference between a term deposit and a savings account?
A term deposit locks your money for a fixed period (1 month to 5 years) at a fixed interest rate. A savings account lets you access your money at any time but pays a variable rate that can change. Term deposits offer rate certainty; savings accounts offer liquidity.
Are term deposit rates higher than savings account rates?
Not always. Currently, the best savings account rates (up to 5.90% p.a. intro with Rabobank, 5.50% ongoing with ING or Suncorp) are competitive with or above most term deposit rates. Judo Bank offers up to 5.15% p.a. on a 12-month term deposit. Whether a term deposit or savings account pays more depends on the specific account, the term length, and current market conditions.
Can you lose money in a term deposit?
No, provided the bank is authorised by APRA and your balance is within the government Financial Claims Scheme limit of $250,000 per person per institution. Term deposits at Australian banks are capital-guaranteed — you get your principal plus interest at maturity.
What happens if you need to access your term deposit early?
Breaking a term deposit early usually incurs a penalty — either a reduced interest rate (e.g., 50% of the agreed rate for the period held) or a flat fee. Most banks require 31 days notice for early withdrawals. If you think you may need access to your funds, a savings account is more appropriate.
Which is better for a house deposit — term deposit or savings account?
For a house deposit you plan to use in 12–24 months, a term deposit can work well if you're confident about the timing. It locks in the rate and removes the temptation to spend. However, if your purchase timeline is uncertain, a high-interest savings account is safer — you can access the funds without penalty if you find the right property earlier than expected.
Related
- Bonus rate conditions explained — how to reliably earn the top savings rate
- Best Savings Accounts 2026 — top picks ranked by rate
- Best Term Deposits 2026 — top rates by term length
- Compare all savings accounts
- Compare all term deposits
This page is for general information only. Rates are variable and subject to change. Government guarantee applies to ADIs up to $250,000 per person per institution. Rates verified May 2026.