Alternative investments to term deposits

A term deposit is a competitive, low risk option to consider when you’re trying to grow your savings. However, if you’ve been there, done that when it comes to term deposits, you may be curious as to what alternatives are available?

Depending on your appetite for risk and your savings amount, there are a range of investment options that could earn you a return on your nest egg. Let’s explore some of the most popular, from low-risk options to higher-risk investments.

Savings accounts versus term deposits

In terms of comparing apples with apples, you cannot look past a savings account as an alternative to a term deposit account. 

If you’re a fan of a low-risk option, a savings account is virtually one of the safest options that you can consider for growing your initial deposit – depending on the interest rate available.

Just like a term deposit, you deposit your funds in the account and it accrues interest over time. You may also withdraw your funds at any time and add to the account when needed. However, savings accounts do have their own strict conditions and eligibility criteria that may influence the return you gain.

• Can be conditions for higher rates – Conditional savings accounts typically offer some of the highest rates on the market. The catch is that you typically need to meet some conditions, such as growing your balance each month or not making any withdrawals.
• Can be fees and costs – Some accounts may charge fees, including account-keeping fees and overdraft fees.   

In fact, if you had opted for a savings account as opposed to a term deposit in the last year, you may have earned a greater return. 

RateCity research shows that if you had deposited $50,000 in the highest savings account and highest term deposit account as of the 1st January 2022, you would have made $702 more through the savings account (assuming all conditions were met).

Savings accounts vs. term deposit: year-on-year returns

Source: RateCity.com.au. Based on $50,000 deposit in highest rate accounts as of 01/01/2022 – ING Savings Maximiser (1.35%) and 12-month Judo Term Deposit (1.12%).

Bonus Saver Account

• Bonus interest with conditions
• App banking
• Online banking

Earn a competitive return on your nest egg with this savings account that also offers branch access and no ongoing fees.

Maximum rate p.a.

5.00%*

Base rate p.a.

0.05%

More details

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Alternative options to grow your savings

If you don’t mind a little gambling, there are other options to consider outside of the ‘safe-as-houses’ investments we’ve already discussed. 

• Equities

Also known as shares or stocks, equities are an investment option in which you purchase shares of a company in the stock market. Depending on the investment option you choose, your appetite for risk and the success of the company, there is a potential to grow the principal amount you have invested through capital gains and dividends. 

In a period of low interest rates, it is not uncommon to find that the return you may earn from investing in equities delivers a greater yield than a set-and-forget term deposit. You also don’t need to start big – instead you could consider an online broking service with low fees to start you off. Alternatively, full-service stockbrokers can guide you through the process of investment and offer personalised advice if you’re not sure where to begin, but this does come at cost.

You could even consider micro-investing if you’re not comfortable taking a big risk with your cash for your first time. This is where you make small-sum investments generally through an app, such as Raiz Invest, CommSec Pocket and more.

• Property

Understandably, the upfront costs associated with this investment option may be out of most people’s budgets. But if you have the savings, it could be worth comparing the returns for investing in property to keeping your cash in a term deposit. 

There are two ways you can make money from a property investment: rent out the property and earn a rental income or sell the property for a profit. Depending on the property market when you’re considering this option, you may find that your return on investment is greater than current term deposit rates.

Aussie Home Loans research shows that between 1993 and 2018, the median house value nationally rose by 412%, or $459,900. While past returns are not an indicator of future performance, it’s worthwhile to see why property is considered one of the most reliable and beloved investment options in Australia.

With property, you also gain a brick-and-mortar investment that, unlike other investments, you can inject cash into through renovations and maintenance to increase its value. This makes the potential for return more controllable depending on the property type, location and vacancy rates in your area.

However, market downturns can and will happen and interest rates will rise and fall over 20-30 year mortgages. These are common risks that you must keep in mind for property investments.

• Index funds

An index fund is an investment that follows a specific portfolio of assets and investments – typically stocks or bonds. Investors will generally pool their money into an index fund, which is then invested into a range of assets.

For example, the S&P/ASX 200 index is one of the most popular options for Australian investors and tracks the largest 200 listed companies on the stock market. It is generally considered a worthwhile investment over the long term, as historically it tends to deliver more positive returns than negative returns.

While you can invest in the individual companies in the ASX 200, you could also spread your investments across all these top 200 companies through this investment option. The buy-in costs for these investments generally start upwards of $1,000. For example, between 31 January 2022 and 31 January 2023, the S&P/ASX 200 increased from $6,971 to $7,467. 

Keep in mind that the share market is also subject to fluctuation, meaning your investment can decline in value. Additionally, fees and charges can apply depending on the platform or broker you use to buy and sell.

Compare term deposits