When you set money aside, a bank usually offers two similar but different options: a savings account and a fixed-term deposit (sometimes just called a "deposit" or "term deposit"). Both let you earn interest on your savings. But they work differently, and that difference affects both how much you end up earning and how easily you can get your money back if you need it.
This guide explains how each one works in plain terms, without pointing to any particular bank or rate.
What a savings account is
A savings account is a bank account where your money sits and gradually earns interest, but you can add money to it or take money out of it at any time, without giving the bank advance notice.
The main feature of this kind of account is flexibility. Need the money for something unexpected? You simply withdraw it, the same way you would from an ordinary account. The interest rate on a savings account is usually variable - meaning the bank can change it over time, up or down, and will notify you in advance if it does.
What a fixed-term deposit is
A fixed-term deposit is an agreement with the bank for a set period - for example, 3 months, 6 months, or a year. You put in a sum of money and agree not to touch it until that period ends. In exchange, the bank promises you a fixed interest rate - one that will not change for the whole length of the term.
Interest on a term deposit is usually calculated for the whole period at once and paid out at the end of the term (sometimes monthly, depending on the specific deposit's terms). Either way, you know the exact amount you will receive in advance, as long as you leave the deposit untouched until the end.
The main difference, in plain terms
In short: a savings account is about having access to your money at any moment. A fixed-term deposit is about certainty in the rate, in exchange for your money being locked away for a set period.
A worked example
Say you have 12,000 (in your local currency) in free savings and want to set it aside for 3 months.
- A fixed-term deposit at a fixed rate of 15% per year for 3 months: 12,000 × 15% × (3 months ÷ 12 months) = 450 in interest for the whole term. You know this exact amount in advance.
- A savings account at roughly 10% per year: if you never withdraw anything over the same 3 months, that works out to 12,000 × 10% × (3 months ÷ 12 months) = 300. But if the rate changes at any point during those 3 months, the final amount may come out slightly different - and you always have the option of withdrawing part of the money early if you need to.
The numbers in this example are illustrative only - always check the real rates with the specific bank. What matters here is the underlying principle: the flexibility of a savings account usually comes at the cost of a somewhat lower potential return compared with a fixed-term deposit.
What happens if you withdraw from a deposit early
This is the most important thing to understand before you open a fixed-term deposit. If you break the deposit early - meaning you take the money out before the agreed term ends - the bank will usually not pay you the full promised rate. In most cases, the interest is recalculated at a much lower rate - sometimes close to what an ordinary current account would pay, and in some cases you may lose nearly all the interest earned during that period.
Because of this, a fixed-term deposit only makes sense for money you are confident you will not need before the agreed date. The early-withdrawal terms are always spelled out in the contract - read that section before signing, and if anything is unclear, ask a bank representative to explain in plain terms exactly what would happen if you needed the money sooner.
Which one to choose
It depends on your goal:
- If the money might be needed at any moment (an emergency reserve) - a savings account is usually the better fit.
- If you know for certain the money will not be needed for the next few months or a year, and you want to know the exact interest amount in advance - a fixed-term deposit is usually the better fit.
- Many people use both at the same time: keeping part of their savings in a savings account "just in case," and putting the rest into a fixed-term deposit.
You can compare current terms and rates across different banks' deposits in the best deposits section. If you are more interested in an everyday account for regular spending, that is a different topic - you can read about it in the best personal accounts section.