Is it better to get a term deposit or a high interest savings account?

Is it better to get a term deposit or a high interest savings account?

Interest rates have been rising on savings products for over a year now. However, many experts now predict the cash rate has reached its peak, with cuts to interest rates on the horizon.

After over a decade of cuts to savings accounts and term deposit rates, the last year of rising rates has been welcome news to savers. In fact, there are a range of savings products with rates starting with a ‘5’, where previously many were below 1%. 

So, with the cash rate set to stay on hold before potential rate cuts in 2024, is now the time to get a high interest savings account or lock in a term deposit rate?

Savings account or term deposit: which is a better savings option right now?

The Reserve Bank of Australia has hiked the cash rate twelve times since April 2022. While the news is mostly doom and gloom for homeowners, in theory a higher cash rate means higher interest paid on savings.

The two most accessible and low-risk savings options for Australians are savings accounts and term deposits. Term deposits work on a fixed rate period, whereas savings accounts offer variable rates, which are subject to market fluctuation. And when the cash rate changes, savings account rates typically move with them, for good and bad.

One of the best ways to determine whether or not you’re better off with a fixed term deposit or variable savings account rate is by taking a look at the interest rate market, and what experts are predicting. 

Big four bank’s cash rate cut forecasts

  • CBA: Next cut May 2024, cash rate falling to 3.10% by December 2024
  • Westpac: Next cut in August 2024, cash rate falling to 2.85% by August 2025
  • NAB: Next cut in August 2024, cash rate falling to 3.10% by February 2025
  • ANZ: Next cut in November 2024, cash rate falling to 3.35% by May 2024

As you can see, the big four banks have predicted that the RBA may start cutting the cash rate in 2024. At least three to five cuts have been forecast until late 2025. With this in mind, you may be considering locking in a fixed term deposit rate now, before interest rates start to fall again for savings accounts. 

However, it’s worth noting that NAB has forecast another cash rate hike may occur in November this year. Even another 0.25% boost to your savings account rate could mean hundreds of dollars more in interest paid into your nest egg. If you were to fix a term deposit rate now, you could miss out on the peak of the market.

That being said, there is more to a term deposit or savings account than the interest charged. While savings accounts and term deposits may seem relatively similar in how they allow your savings to grow, there are key differences worth exploring:


Term deposits

Savings accounts


Lock away your funds for a fixed period, typically a few months or up to 5 years.

Grow your funds indefinitely.

Withdrawing funds

Cannot access funds without penalty until term deposit matures.

Access funds at any time. For conditional savers, this may impact the interest rate you earn.

Interest rate

Fixed rate and will not change if cash rate moves.

Variable rate and subject to market fluctuation.


Break fees charged when ending a fixed term early.

No fees for spending funds, but account-keeping fees may be charged. Some fees may be waived if account conditions met, like minimum deposits each month.

Conditions to earn highest rates

You will earn the maximum rate if you leave the funds untouched for the fixed period.

Conditional savings accounts may have several conditions you must meet to earn the highest rate.

Opening deposits

May need to invest between $5,000 – $10,000 to open an account.

Typically, a $1 deposit is needed to activate an account.

Payment limitations

Term deposits may charge different rates depending on the fixed term and the balance.

Savings accounts may set a balance limit on how much you can earn interest on.

Term deposits vs savings accounts

The key difference between term deposit rates and savings account rates, in terms of the growth of your nest egg in a higher rate environment, is that one is fixed, and one is variable.

Once you agree to a term deposit period, your interest rate will not change for the duration. Providers will typically reserve their highest interest rates for their longest terms, as this encourages you to remain their customer for longer. If you’re currently growing your savings in a term deposit, you will not experience any rate changes until the term deposit reaches maturity.

But this does not mean you have to miss out on higher rates, as in this time the provider may be increasing rates for new customers. RateCity research shows that average term deposit rates for 1–5-year periods have risen by between 2.91% - 3.94% since April 2022 (prior to the first cash rate hike)

Once the term deposit reaches maturity, you could find that interest rates are higher. You may consider rolling over your account to a new, higher rate deposit period, or switch to a more competitive provider.

Comparatively, savings account interest rates are variable and should move as the cash rate does, assuming your provider passes on the rate change. Unfortunately, this isn’t always true as interest rates are ultimately up to the lenders’ discretion. 

In fact, following the last cash rate hike in June 2023, some of the big four banks did not pass on the full 0.25% increase to all savings products. For example, NAB increased its online saver account by only 0.15%, whereas Westpac did not immediately pass on an increase to its online saver.

Many banks and providers are hiking rates well above 5% though. If your provider has not passed on the latest rate hike in full (or at all) it’s worth comparing your options.

The bottom line

If you’re looking to get the best bang for your buck right now, it may be worth weighing up how the two options differ, and which one suits your lifestyle better. For example, if you struggle with dipping into your savings, you may find a term deposit suits you more.

Compare a range of options, including not only interest rate offered, but any fees or conditions as well, to determine which account type may be the best for your savings goals.

Product database updated 22 Oct, 2023

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.