There is often confusion when it comes to savings accounts, especially online savings accounts. Many are unable to comprehend where savings accounts fit into the mix, but, put simply, they are a little bit more than a normal transactional account but not as full on as a term deposit.
Savings accounts usually give a high introductory interest rate, this is why they are often called high interest savings accounts. Savings accounts are also often associated with having no minimum balances and have no fees. Most however require you to link to a transactional banking account with the same bank or with a partner bank. The best thing about savings accounts is that there is no minimum term, meaning you can save for as long or as short of a period as you’d like.
Most savings accounts these days are purely online. It makes it easy for customers to transfer money from their everyday account to their online savings account and track their savings goals. Savings accounts rarely come with ATM cards or keycards, and if you wish to access your savings quickly, you may need to transfer it back to your transactional account.
Transactional accounts are made for everyday banking. They are often tied to debit cards or keycards which can be used to withdraw money from ATMs or to make purchases in shops or online. These accounts usually come with no fees, unlimited ATM usage (usually only ATMs held by that bank or in partnership banks) and no minimum term. They usually come with zero interest rate, or a rate that is incredibly low.
Term deposits come with a high interest rate. They also usually come with minimum deposits as well as “terms”. You usually have to put your money away in increments of 3months, the most popular terms are 3 – 12months as well as 2 year deposits. As you are locking away your money, the banks can afford to give you a higher interest rate because they have locked in this money for the longer run. Term deposits usually come with no fees, a higher interest rate and minimum deposits.
Here at Which Savings we currently compare a wide range of savings accounts, we are considering moving into term deposits, but at this present time, don’t think they are offering anything substantially different to high interest savings accounts that are out on the market.