Having a well-chosen savings account can generate a tidy nest egg for you in compound interest over time; however you should look for an account that pays the best rate of interest, has low or no fees and suits your personal circumstances.
If you are considering a savings account, non-bank lenders and internet-only savings accounts can often rival, and better, those offered by the big banks. That said, the banks, not to be outdone in this competitive environment, have reorganised their standard low and no-interest transaction accounts and are starting to offer better deals for customers who want to save.
Choosing the right savings account does not necessarily mean choosing the account with the highest rate of interest. Some accounts carry conditions that, despite a high interest rate, could potentially negate the benefits of a strong interest return for you.
Online savings accounts
One of the best places to build short term savings is with a higher yielding online savings account. First offered by non-banks and credit unions, these accounts are now available from a wide range of established institutions. The interest rates are often higher with an online savings account compared to a standard savings bank account. This is possible because with these savings accounts, non-banks don’t have to support costly branch networks, allowing them to offer more generous interest rates on their savings accounts.
The downside however, is that with online savings accounts non-banks may not offer the full range of services, such as EFTPOS, ATM or telephone banking facilities that standard accounts from the big banks usually provide.
Conditions on savings accounts
With saving accounts, non-bank and banks both can offer interest ‘sweeteners’ to encourage saving. Be aware that some of these ‘sweeteners’ only give bonus rates if you meet certain conditions – for example, making regular deposits or opening an account with a deposit of $200 or more. Should you not meet one of the conditions, you may miss out on the higher interest rate offered. That said, beginning a habit of making regular deposits will see your wealth quickly grow.