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Many of us may not have given that much thought about how to maximise our savings. When you have worked hard to save, it makes sense to be smart about where you put your money.
In most cases, there are two main options available for those who have saving goals or want to maximise their interest returns after a few years of saving. This is where term deposits and savings accounts can help. So, which one do you choose?
Choosing a term deposit or savings account
You may have heard of term deposits, but what are they exactly? Some of you might know people who have invested savings into these accounts which are often products offered by banks, credit unions or building societies. In most cases, your money is invested for a fixed term with a fixed rate of interest over that term1.
When money is deposited into a term deposit, it is held there for a pre-determined period which might range from 1 month to 5 years. The interest rate is unlikely to change for that nominated period of time provided that the customer has met all the terms and conditions of that particular product2.
On the other hand, the interest rate on a high-interest savings account can vary based on the discretion of your chosen financial institution, meaning the rate of return from interest isn’t locked in.
Things to consider
IIMB Bank is an Australian Prudential Regulation Authority (APRA) registered Authorised Deposit-taking Institution (ADI) and offers both term deposits3 and high-interest savings accounts. If you are considering investing in either a term deposit account or a savings account4, contact IMB to discuss these products.
Often, financial institutions require a minimum initial deposit amount. This amount may vary from one financial institution to another, and you might like to consider all the options available to you to make an informed decision.
What to choose when you need a flexible option
With term deposits, there usually is a minimum tenure period and in most cases, this can’t be said for a savings account. With a savings account, you may need to keep your money within the account for a certain period of time to maximise the interest paid into the account. Despite this, the flexibility of a savings account can allow you to access to your funds in an emergency. There are usually no penalties for withdrawing these funds.
With a term deposit, you will need to consider how prepared you are to limit your access to your funds during the term of your deposit. If you encounter an emergency situation where you need access to your savings, consider the potential fees and charges or loss of interest that you may incur for early access to your term deposit.
Invest savings for maximum interest return
If you’re looking to invest your savings for maximum return of interest, you don’t necessarily have to have one account or the other. In fact, you can have the option of using both types of accounts to your advantage. This can allow you to have the security of the term deposit in one account, but also, the flexibility of another savings account if you need to access your funds during emergencies. This strategy may take some more advanced financial acumen which a Financial Planner might be able to assist with.
