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Could your savings be getting a better return? | Updated: 5:09:02 PM, Thursday October 06, 2011
By Could your savings be getting a better return?

With the turbulence in the markets people are turning to savings accounts and term deposits for their security. But which is best for your hard-earned money?

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With all the turbulence in the sharemarket these days, a lot of people are turning to savings accounts and term deposits for their security, especially since the government guarantees deposits up to $1 million. But which is best for your hard-earned money, a savings account or term deposit?

The difference could be thousands in interest over just five years. Here’s how.

Savings accounts

The key benefit of a savings account is flexibility. Most online savings accounts give you access to your funds without incurring a penalty in reduced interest.

But not all savings accounts are born equal.

The average standard interest rate for the Big Four banks is 4.8%. And while there are more attractive ‘special’ interest rates, such as ANZ’s Online Saver, which offers an extra 1.5%, these typically expire after just a brief bonus period (the Online Saver bonus dies on December 31).

Long-time savings chart-topper USaver (from Ubank) offers a standard rate of 6.01%, and an ongoing bonus of 0.5% with a regular deposit of $200 or more a month.

The difference between the USaver and the Big Four average, for a $10,000 lump sum with monthly deposits of $200, is an astonishing $1735 over five years.

Term deposits

If you don’t want to make a monthly deposit, but can afford to put your money away for several years, a term deposit could be the answer.

Again, there’s a surprising difference between the offers: the Big Banks offer, on average, 6.2% on a five-year term deposit, while the chart-topper here is Wide Bay Credit Union’s Long Term account at 7.25%. For a deposit of $10,000, that’s a difference of $525 over five years. With no added security for the poorer of the offers.

The catch here is that early withdrawals result in sharp interest rate penalties, while shorter term deposits offer significantly less interest to begin with. For one-year term deposits, the current market leader is Victoria Teachers Credit Union, offering 6.4%. You’ll note this is worse than many savings account deals, which still offer more flexibility!

Easy steps to savings success

Can you afford to park your money for five years or more?

If yes, then compare term deposits for the best deal on the market.

If no, can you make regular monthly deposits?

If yes, compare savings accounts and go for the best ongoing special interest rate.

If no, compare asavings accounts look for the highest standard interest rate around.

Please note: Any rates mentioned in this article were available at time of writing, 12/08/2011.

Source: is Australia’s leading independent online comparison and reviews service.

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