Which Are Better: Savings or Deposit Accounts?
In light of the recent Reserve Bank of Australia cut to the cash rate of 50 basis points many of us have been considering switching our savings accounts in order to secure a higher interest rate on our savings. The Reserve Bank of Australia’s cut to the cash rate was designed to alleviate the problems on the property and mortgages market that many of us are aware of. While this is definitely a positive approach it does mean that the majority of lenders have cut their savings rates by the same amounts. A recent article on a News.com.au has predicted that people will begin to switch their savings accounts to try and secure a higher interest rate. However, before people rush to switch accounts we thought it would be worth re-examining the different savings and deposits accounts available and seeing whether it is actually worth switching for most people.
Standard savings accounts will undoubtedly take the brunt of the 50 point basis point cut to the cash rate as these re the most flexible savings accounts on offer. Many banks have already made the full changes while others have made partial adjustments. However, there are a number of advantages to savings accounts that should be investigated before we rush to make changes to our savings.
The most important of these differences is that savings accounts offer a much higher degree flexibility than you can attain from deposit accounts. At the primary level your money is readily accessible and you generally won’t suffer interest losses by making withdrawals. At the same time you can manage your money more efficiently through a savings account online. Finally you have flexibility in that you can shift your money to take advantage of better rates if they appear in the future. Having this degree of flexibility with your money is highly important to many of us. Recent economic events have meant that we are increasingly finding ourselves facing financial strain and it is always beneficial to have savings that you can dip into whenever you need them.
Secondly regular savings accounts are also better suited to ad hoc savings and small savings as they have no limits on the amounts you can deposit or the regularity of your deposits. You can run a regular savings account set to deposit monthly but you can also easily add in additional funds and make changes when needed without losing out. We found a good overview of all your available options on Bankwest website (http://www.bankwest.com.au/personal/savings-term-deposits/savings-term-deposits-overview).
Conversely deposit based savings accounts will secure better interest rates but you will often lose a large degree of the flexibility you can enjoy from a regular savings account. Deposit based savings accounts allow you to attract a higher interest rate but you run the risk of losing your interest if you have to make unexpected withdrawals. This means that deposit based accounts are most suited to savings that you know you will not need in the foreseeable future. However, many deposit accounts still allow you to save regularly despite you not being able to withdraw as often. This makes these types of accounts perfect for people wanting to accrue interest on money towards a house or other long term financial goal.
That said there are plenty of options to suit a particular style or need from a savings or deposit account and you should be able to find something to suit your particular financial situation and needs.