High-yield accounts vs. Term deposits: Where to put your money
💡 Quick Tip
Protect your savings from inflation without taking stock market risks. We thoroughly compare high-yield savings accounts and term deposits so you can decide which product best suits your current liquidity and profitability needs.
The silent enemy: Inflation
Keeping your money idle in a traditional checking account that pays nothing is mathematically equivalent to losing money daily. Inflation reduces your purchasing power. To counter this safely, banks offer two conservative tools.
High-Yield Accounts: Maximum flexibility
The bank pays you a monthly interest percentage simply for keeping the money there.
- Pros: Immediate availability. You can withdraw money anytime without penalties. Perfect for an emergency fund.
- Cons: Interest rates are usually lower than deposits, and the bank can lower the rate with little notice.
Term Deposits: Locked security
You give your money to the bank for a set time (6 months, 1 year) for a fixed, pre-agreed return.
- Pros: Guaranteed higher interest for the contract duration. Whatever happens in the economy, the bank pays the agreed amount.
- Cons: Lack of liquidity. Withdrawing early usually triggers a penalty (you lose generated interest, though never the principal).
How to smartly combine them
You do not have to pick just one. The perfect strategy is liquidity diversification. Keep money for emergencies in a high-yield account, and lock money you know you won't touch in a deposit to maximize returns.
📊 Practical Example
Practical example with real numbers
You have €10,000 in savings.
- You put €3,000 (emergency cushion) in a High-Yield Account at 2% annually.
- You put the remaining €7,000 in a 1-Year Deposit at 3.5% annually.
After a full year, you generate:
- From the account: €60 gross.
- From the deposit: €245 gross.
In total, you earned €305 in entirely safe, passive interest. Plus, you had the peace of mind knowing your €3,000 was available immediately if your car broke down.
