One keeps your money flexible, the other locks in a guaranteed rate. Here is how to choose.
If you are holding cash and want it to earn its keep, two of the most common homes for it are a high-interest savings account, often called a HISA, and a term deposit. Both are offered by banks and both pay interest, but they suit different jobs. The right choice usually comes down to one question: how soon might you need the money?
A high-interest savings account keeps your money available. You can withdraw it when you like, and the bank pays a variable interest rate, which means the rate can move up or down at any time. A term deposit works the other way around. You agree to leave a set amount untouched for a fixed period, anything from a month to several years, and in return the bank locks in a fixed rate for the whole term. You give up easy access in exchange for knowing exactly what you will earn.
| Feature | High-interest savings account | Term deposit |
|---|---|---|
| Access to funds | Anytime | Locked until maturity |
| Interest rate | Variable, can change | Fixed for the term |
| Conditions for top rate | Often monthly conditions apply | None, rate is set up front |
| Early withdrawal | Free | Notice and reduced rate |
| Best for | Everyday savings and emergency funds | Money you will not need for a set period |
HISAs often advertise an attractive headline rate that is actually made up of a base rate plus a bonus, and the bonus only applies if you meet conditions each month, such as depositing a minimum amount and making no withdrawals. Miss the conditions and you drop to the lower base rate. Term deposits avoid that game, but the cost is flexibility: if you need the money before maturity, you generally have to give notice and accept a lower rate, which can wipe out much of the benefit.
Both products are low risk. Deposits held with an Australian authorised deposit-taking institution are protected by the government's Financial Claims Scheme up to $250,000 per account holder per institution, as explained on ASIC's Moneysmart. Keep in mind that interest from either product is taxable income, taxed at your marginal rate, and is reported to the ATO. Many savers use both: a HISA for the cash they may need at short notice, and a term deposit for a lump sum they are confident they can set aside.
Disclaimer: This article is general information, not financial advice. Rates, conditions and product features vary between providers and change over time. Compare current products and read the terms, and see ASIC's Moneysmart for neutral guidance.