Savings accounts have really been revolutionised by the internet. Without the cost advantages of electronic banking it would not be possible for financial institutions to offer the relatively high interest rates they do with these products. There's also lots of competition. It's not just the major banks that offer attractive rates for online savings accounts – small banks and credit unions offer very competitive products.
Not surprisingly, the first thing most people look at to compare high interest savings accounts is the interest rate. It's a good place to start, because yes, 5.5 percent is better than 5 percent for instance and so looking at rates will tell you whether you'll earn more from one account or the other.
But you need to go one step further when you compare high interest savings accounts – it's not super complicated, but will take a few more minutes so you don't just jump at the highest rate without looking at the fine print. Many online savings accounts have some form of special condition you have to meet in order to get the highest interest rate; if you don't meet this condition, you'll get a lower rate.
That's why at RateCity, we show both the "base" (or lower) rate, and the bonus or promotional rate.
The key to making on online savings account work is the discipline of adding money to it all the time. For most us, that's easy to do when we get a windfall gain, like a bonus. But it's much harder to remember to do it month in, month out.
That's where an automatic savings plan kicks in. Just like a direct debit to pay your mortgage or rent, you set up an automatic payment from, say, your transaction account to go into an online savings account.
The big drawback of online savings accounts is that the interest rate is variable. So when you see a rate of 5.5 percent, for example, remember that the rate could go up, or it could go down. That's why it's so important to keep an eye on rate movements and compare high interest savings accounts to ensure you're getting the best possible rate for your circumstances to maximise your savings.