What are savings account conditions?

When you deposit money with a bank or another Authorised Deposit-taking Institution (ADI) such as a neobank or fintech, the bank will use this money to help provide financial services to its other customers. You can think of it as something similar to giving the bank a loan, or investing in its business.

Because the bank is using your money, it will pay you interest on your deposits - a lot like how you pay interest to a bank when you borrow money with a personal loan or credit card. The more money you can deposit into a savings account, and the longer you leave it in the bank’s care, the more interest you may be able to earn. Earning more interest on your savings can not only help to grow your wealth, but a high enough savings interest rate can help prevent your money from going backwards due to inflation eroding its purchasing power.

Most everyday transaction accounts offer very low or no interest, as it’s expected you’ll use this money to manage your regular expenses. Dedicated savings accounts are more likely to offer higher interest rates to encourage customers to deposit more money into these accounts and keep it there.

It’s also important to remember that variable savings account interest rates may rise or fall over time, whether due to changes to the Reserve Bank of Australia (RBA) cash rate, or other factors affecting the account provider. This could make it harder to forecast exactly how much interest you could earn on your savings over time.

Savings accounts often pay interest at a base rate, but also offer a bonus rate if you fulfil certain terms and conditions. These conditions usually encourage you to deposit as much money as possible into the savings account and keep it there for as long as you can.

Some common savings account conditions include:

• Making a minimum number of deposits into the savings account per month
• Depositing a minimum amount of money into the savings account each month
• Making no withdrawals from the savings account in a month 
• Making a minimum number of transactions using a linked transaction account with the same bank

It’s worth comparing savings accounts and looking at which bonus rate conditions may best suit your lifestyle and financial situation. For example, you may be able to automatically transfer part of your regular wage into your savings account each month to ensure you always deposit the minimum amount required to receive the higher bonus rate.

Sometimes called the honeymoon rate, this is a high interest rate offered for an initial period after opening a savings account, often just a few months. These rates encourage new customers to join the bank and earn as much interest as possible early on.

Just keep in mind that once this introductory period expires, you’ll revert to the savings account’s base rate, which will typically be lower than the introductory rate.

Term deposits work differently to savings accounts, and generally don’t offer bonus interest rates.

Rather than giving you flexible access to a bank account where you can deposit and withdraw money as you please (though this could affect the interest you earn), opening a term deposit means agreeing to deposit a lump sum of cash with the bank for a predetermined length of time, allowing you to earn interest on this money at a fixed interest rate. Because both the term and the interest rate are set in advance, it’s easy to calculate exactly how much interest you’ll earn on your savings with a term deposit.

However, you won’t be able to easily access this money in a hurry, as most term deposits require you to give plenty of prior notice (often around 30 days) before you can withdraw money. You also won’t be able to top up the term deposit with extra cash whenever you choose.

To make changes to a term deposit, you’ll generally have to wait until the end of the agreed term, when the term deposit ‘reaches maturity’. Then you can consider moving money in or out of the term deposit, switching to an alternative option, or allowing the deposit to ‘roll over’ for another term.