Savings Alternative Return Calculator
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When you hear savings account alternatives are other places to keep cash that aim to give you more interest while still keeping risk low, you probably wonder if they’re worth the hassle. Below you’ll see why a plain savings account often falls short, and which options can give you a better return without turning your money into a gamble.
TL;DR
- High‑yield savings accounts and money‑market accounts usually beat traditional savings rates by 2-5% APR.
- Term deposits (CDs) lock in higher rates for 3‑24 months, perfect if you don’t need immediate access.
- Short‑term government bonds offer safety and slightly higher yields.
- Low‑cost index funds or ETFs let you earn market returns with minimal fees.
- Peer‑to‑peer lending and robo‑advisor portfolios can add extra yield, but come with a bit more risk.
Why a Regular Savings Account Often Leaves Money on the Table
Traditional savings accounts in Australia typically pay 0.5%-1.2% interest per year. The rate barely keeps up with inflation, meaning your purchasing power actually shrinks over time. Moreover, most accounts require a minimum balance to avoid fees, and the interest compounds only monthly, further limiting growth.
High‑Yield Savings Accounts
High‑Yield Savings Account is an online‑only deposit product that offers rates 2-5% higher than brick‑and‑mortar banks. They usually have no monthly fees, low minimum balances (often $0), and daily compounding. In 2024, several Australian neobanks posted rates around 4% p.a., a stark contrast to the 0.9% average at big banks.
- Liquidity: Same day access via electronic transfer.
- Risk: Covered by the Australian Government's Financial Claims Scheme up to $250,000.
- Best for: Emergency funds and short‑term goals.
Term Deposits (Certificates of Deposit)
Term Deposit is a fixed‑term investment where you lock your money for a set period and earn a guaranteed interest rate. Aussie banks currently offer 3‑month terms at 2.5% and 12‑month terms up to 4.2%.
- Liquidity: Funds locked for the term; early withdrawal incurs penalties.
- Risk: Fully protected by the Financial Claims Scheme.
- Best for: Money you won’t need for 3‑12 months and want a predictable return.
Money‑Market Accounts
Money‑Market Account combines features of savings and checking accounts, typically offering higher interest and limited check writing. Australian versions often yield 2.8%‑3.5% p.a., with a requirement to keep $5,000‑$10,000 on deposit.
- Liquidity: Up to six withdrawals per month, plus electronic transfers.
- Risk: Covered by the Financial Claims Scheme.
- Best for: Balancing easy access with better rates than a regular savings account.
Government Bonds
Government Bond is a debt security issued by the Australian Treasury, offering a fixed interest payment over a set term. Short‑term (1‑3 year) bonds have yielded 3.0%‑3.7% in 2024, outpacing most savings accounts.
- Liquidity: Can be sold on the secondary market, though price may fluctuate.
- Risk: Considered one of the safest assets; backed by the sovereign.
- Best for: Investors seeking stability with a modest return.
Low‑Cost Index Funds & ETFs
Index Fund tracks a broad market index like the ASX 200 and charges a tiny expense ratio, while Exchange‑Traded Fund (ETF) offers similar exposure but trades like a stock on an exchange. With total expense ratios as low as 0.07% and average annual returns of 8%‑10% over the long term, they are the go‑to for growth‑oriented savers.
- Liquidity: Buy or sell any market day.
- Risk: Market risk; value can go down in the short term.
- Best for: Those who can leave money invested for at least five years.
Peer‑to‑Peer Lending & Robo‑Advisors
Peer‑to‑Peer Lending Platform connects lenders directly with borrowers, offering yields of 5%‑12% after fees. Examples include RateSetter and SocietyOne. Meanwhile, Robo‑Advisor automates portfolio allocation based on risk profile, often delivering 4%‑6% net returns for low‑risk settings.
- Liquidity: P2P loans are locked for the loan term (usually 3‑5 years); robo‑advisor funds can be withdrawn with a few days’ notice.
- Risk: Higher than government bonds; defaults or market dips can affect returns.
- Best for: Savvy investors comfortable with a bit more risk for higher yield.
How to Pick the Right Alternative for Your Money
Use the checklist below to match your goals with the most suitable option.
- Time horizon: If you need cash in under a year, stick with high‑yield savings or money‑market accounts.
- Risk tolerance: Want rock‑solid safety? Government bonds or term deposits are best.
- Liquidity needs: For frequent withdrawals, choose accounts that allow daily transfers.
- Minimum balance: Some high‑yield accounts require $0, while money‑market accounts may need $5,000.
- Tax considerations: Interest from savings and term deposits is taxable; dividends from ETFs may receive franking credits.
Quick Comparison of Top Alternatives
| Product | Typical Return (p.a.) | Liquidity | Risk Level | Protection | Min. Balance |
|---|---|---|---|---|---|
| High‑Yield Savings | 3.5%‑4.5% | Instant | Low | FCS up to $250k | $0 |
| Term Deposit (12‑mo) | 4.0%‑4.2% | Locked (penalty for early) | Low | FCS up to $250k | $1,000 |
| Money‑Market Account | 2.8%‑3.5% | 6 withdrawals/month | Low | FCS up to $250k | $5,000 |
| Government Bond (2‑yr) | 3.2%‑3.7% | Sellable (price risk) | Very Low | Implicit govt guarantee | $0 |
| Broad‑Market Index Fund/ETF | 8%‑10% (long‑term) | Daily trade | Medium‑High | None | $0‑$100 |
| P2P Lending / Robo‑Advisor | 5%‑12% (P2P) / 4%‑6% (Robo) | Locked or few‑day notice | Medium‑High | None | $100 |
Frequently Asked Questions
Are high‑yield savings accounts really safe?
Yes. In Australia they are covered by the Financial Claims Scheme up to $250,000 per depositor per institution, just like regular savings accounts.
What’s the downside of locking money in a term deposit?
If you need to withdraw early, you’ll usually pay a penalty that can eat into the interest you earned, or you might lose a portion of the principal.
Should I worry about taxes on the higher yields?
Interest from savings, term deposits, and bonds is taxable as ordinary income. Dividends from ETFs may come with franking credits that offset tax. Keep records and consult a tax adviser.
Can I mix several alternatives together?
Absolutely. A common strategy is to keep 3‑6 months of expenses in a high‑yield savings account for emergency access, lock a portion in a 12‑month term deposit for a guaranteed boost, and invest any surplus in a low‑cost index fund for long‑term growth.
How do I get started with a money‑market account?
Choose a bank that offers the product, meet the minimum opening balance, and link your existing accounts for easy transfers. The sign‑up process is usually online and takes a few minutes.
Bottom line: a plain savings account is fine for parking cash you need right now, but if you can stretch the timeline a little, one of the alternatives above will give you a noticeably higher return without adding scary risk. Pick the mix that matches your timeline, comfort level, and tax situation, and watch your money work harder for you.