Paul, unfortunately you don't answer the question in the headline, which is, "where should I save....?" The question you have answered is, "Should I save....?"

She has asked if she should save for a deposit on a house via a term deposit, or if she should invest in shares to build up the deposit.

The reason this caught my eye is because I have a friend in a similar situation who has asked me how she should go about saving for her deposit now that she's decided she wants to buy a house. My answer is that it comes down to timeframes: how short of the deposit is she, and therefore how long will it take her to save for it. If able to buy in, say, 12 months, a term deposit is the way to go. If it will take her 4 - 5 years to get the deposit together, I'd be recommending indexed funds as these will (based on history!) grow her money faster than a term deposit rate.

Your thoughts?

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