High Yield Savings Accounts vs. Term Deposit Accounts: Pros & Cons

If you’re just starting your financial journey and are still apprehensive in investing your money, this blog is for you!

A good way to start diversification is to deposit your money in high yield savings accounts and term deposit accounts. While keeping your money in a regular savings account is common, it disregards how keeping it there lessens its value when compared with the inflation rate.

Luckily, you have other passive options you may explore to not only safeguard your money but to also grow it as you go.

High Yield Savings Accounts

High yield savings accounts are often promoted as a type of savings account that offers a higher interest rate compared to traditional savings accounts. This higher rate is designed to help savers earn more on their deposited funds and is a key feature highlighted in financial services marketing. High yield savings accounts often have similar features to traditional savings accounts, including insurance and the ability to make withdrawals, making them a convenient and flexible option for savers. However, the higher interest rate is their main selling point, making them a popular choice for investors seeking to earn a higher return on their savings.

Pros of High Yield Savings Accounts

  • Accessibility – High yield savings accounts have no lock in period, this means that you may also easily withdraw your money when you need to.
  • Easy Deposits – High yield savings accounts allow you to deposit money whenever you please. There’s no limit to how frequent or rare you decide to add to your savings.
  • Zero or Low Fees – High yield savings accounts also usually have zero to low fees and can be opened online with relatively low minimum deposit.

Cons of High Yield Savings Accounts

  • Accessibility – This advantage can serve as a disadvantage as well. With the ability to easily access your money, you may be tempted to withdraw and use it therefore forfeiting its biggest advantage — its higher interest rate.
  • Minimum Balance Requirements – Some high yields accounts have fees and other requirements such as minimum balance requirements or daily transaction limits.
  • Fluctuating Interest Rates – High yield savings accounts may offer high interest during launch, however, they tend to lower it as time passes by. This means that your money may not gain the same interest rate the longer you keep it there.

Term Deposit Accounts

A term deposit account is a type of deposit account where your funds are kept for a fixed or agreed-upon period of time. This “term” can range from one month to five years.

Pros of Term Deposit Accounts

  • No Service or Set-up Fees – Term deposits usually have no service or set-up fees and can easily be set up purely online.
  • Low Maintenance – With a term deposit, you won’t have to worry about setting up regular transfers or depositing funds. Once you’ve set it up, you can forget about it up until its maturity.
  • Fixed Interest Rates – Term deposits are great for those who want to make sure that their money will be earning a fixed, predetermined interest rate no matter what happens in the economy.

Cons of Term Deposit Accounts

  • Locked In Period – The biggest disadvantage of a term deposit is that your funds are locked in for the entire duration during which you cannot access them until it matures. If you do, service fees may be charged.
  • Inaccessibility – Once you deposit money in your term deposit account, you won’t be able to add to it anymore unless you wait for your term deposit to roll over to a new account.
  • Initial Minimum Deposit – Compared to high yield savings accounts, term deposit accounts tend to have a higher initial minimum deposit ranging from $1,000 to $5,000.


Whether you’re a saver or investor, high yield savings accounts and term deposit accounts are both great options to diversify your portfolio. Each has its own advantages and disadvantages but both are insured by the Australian government under the Financial Claims Scheme (FCS).

Depending on your financial goals, one may be a better fit than the other. Be sure to weigh up all the pros and cons before making a decision and consult a financial adviser.

Interesting Related Article: “5 Reasons Why it is Important to Have a Savings Account