Term deposit rates vs. bonus savings accounts

TJ RYAN
8 June 2016
Can you get a better interest rate from a term deposit or a conditional bonus account? Canstar reveals the savings rates on offer.

Getting a return on your cash is quite challenging in our current low interest rate environment, so every few basis points of return really does make a difference. The question is: should you lock your money away or go for an at-call bonus account instead?

What is a conditional bonus savings account?

Generally, a conditional bonus savings account is an at-call cash account that offers a base rate of interest as well as a “bonus” amount of interest if you stick to the strict withdrawal/deposit conditions that the account specifies.

For example, a condition on receiving the bonus interest might be that you must deposit at least $200 into your account per month and make no withdrawals, or perhaps deposit $1,000 per month and make no more than one withdrawal. That’s why it’s called conditional bonus.

Pros and cons of a conditional bonus account

Getting a bonus is all well and good, but there are also a couple of drawbacks of these accounts.

Pros of bonus savings accounts:

  • The money is invested in cash, which is considered a safe investment.
  • Your money is accessible and you can take out part or all of the funds at any time.
  • Getting a bonus for obeying the rules can help reduce your temptation to spend.

Cons of bonus savings accounts:

  • The future interest rate is not guaranteed and it can change at any time. (On the plus side, it could also increase!)
  • The bonus conditions could be quite restrictive.
  • The base interest rate could be quite low, so if you don’t qualify for the bonus interest, your return on investment could be modest.

Bonus savings account interest rates

The interest rates on offer – both base and bonus interest rates – differ significantly between products, so it certainly pays to shop around. At time of writing, the highest, lowest and average rates for an at-call savings account with a conditional bonus on Canstar’s database are as follows:

Minimum Maximum Average
Base 0.15% 2.35% 1.69%
Total 0.15% 3.40% 2.14%
Based on products on www.canstar.com.au database.
Rates as at 6 June 2016.

 

 

What is a term deposit?

A term deposit is an account that you open where you put a lump sum of money in and then commit to leaving it there for the set investment timeframe.

Term deposits provide a guaranteed rate of return because they have a fixed interest rate for the term. This is unlike a conditional bonus account, which has a variable interest rate that is likely to change if the Reserve Bank makes an alteration to the official cash rate.

Pros and cons of a term deposit

As with bonus saver accounts, term deposit also have both good and not so good features.

Pros of term deposits:

  • The money is invested in cash, which is considered a safe investment.
  • Your rate of return (interest rate) is set at the start of the term and guaranteed for that period. This may enable you to lock in a good interest rate.
  • Term deposits remove the spending temptation, as fees apply if you access your savings before it reaches maturity.

Cons of term deposits:

  • Penalties may apply if you access your money before it matures.
  • If interest rates increase, your savings are locked in at a lower rate.
  • You need to invest a lump sum of money at the start of the term and cannot add to it periodically.

Term deposit account interest rates

As with bonus saver accounts, the interest rates on offer for term deposit differ significantly between products. At time of writing, the highest, lowest and average term deposit account rates on Canstar’s database for a personal term deposit are as follows:

Term Min (%) Max (%) Average (%)
30 Days
(1 Month)
1.45 2.45 1.95
60 Days
(2 Months)
1.70 2.55 2.07
90 Days
(3 Months)
1.70 3.05 2.43
180 Days
(6 Months)
0.92 3.30 2.52
270 Days
(9 Months)
1.70 3.10 2.38
1 Year 1.85 3.05 2.61
2 Years 2.10 3.10 2.69
3 Years 2.10 3.40 2.76
4 Years 2.40 3.10 2.80
5 Years 2.45 3.20 2.93

Based on products on www.canstar.com.au database.Rates as at 6 June 2016.
There are plenty of other investment terms to choose from when it comes to term deposits; you can compare term deposits here.

 

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