Savings accounts can be an effective way to grow your personal wealth. Products like a Citi savings account can help you reach short- and long-term financial goals.
However, there are some savings account limitations you should be aware of before signing the dotted line. We’re going to look at the key traits of products like Citi savings accounts, and how these play an important role in any saver’s broader financial strategy.
How does a savings account work?
Savings account are designed to help your money grow, without exposing funds to market risk. Typically, a bank savings account will offer higher interest rates than a transaction account, and will have mechanisms in place to make your money more difficult to access.
Many people open an online savings account in conjunction with their everyday transaction account, transferring funds into the savings account regularly to take advantage of the superior interest rate.
What different bank accounts are available?
If you’re on the hunt for the best savings account, most financial institutions like Citi will have multiple options available. Bank account comparison can be difficult, but it’s important to test the market so you have the right product to suit your financial goals.
- Savings account – If you’re looking for a way to store money you won’t need straight away, a savings account could be an ideal solution. High-interest savings accounts can be a convenient, easy way to increase your wealth, without exposing it to market risk. It is important to note, however, these accounts are generally not as accessible as traditional transactional accounts, and often require a minimum deposit amount when opening.
- Transactional account – These bank accounts are set up to make managing the money you use on a day-to-day basis simple. Your money can be easily accessed via debit cards, ATMs or the internet to meet regular expenses, although these accounts typically offer inferior interest rates when compared to savings account options.
- Term deposits – These financial products are set up a little differently to traditional bank accounts, and there are advantages and disadvantages. A term deposit keeps your money in an account for a set period of time. You won’t be able to access your funds during that period, but you will earn a fixed rate of interest on this money.
What should I look for when choosing a savings account?
If you’re in the market for a savings account from Citi or any other financial institution, there are several factors you should consider before signing the dotted line:
- What’s the interest rate? – The savings account interest rate should be a key factor when deciding upon which account is the best fit for you. It’s important to note interest rates vary. Some financial institutions offer superior rates as an ‘introductory bonus’ that expire after a few months. Read the fine print, and make sure you’re comfortable with the interest rate.
- Are there fees? – Regular admin and account-keeping fees can chew into any interest you’ve earned on your account. Test the market and make sure you’ve selected a savings account with fees that you can manage, and that won’t jeopardise your ability to earn interest.
- What are the minimum and maximum account balances? – Many high-interest savings accounts have minimum and maximum account balances you’re required to uphold.
- Will it require a linked account? – Many savings accounts require a linked transactional account, which will help the account owners manage their funds.
- Is the account offered by an authorised deposit-taking institution (ADI)? – These accounts are regulated by the Australian Prudential Regulation Authority (APRA) and authorised by the government to offer bank account products to consumers.
What are the pros and cons of savings accounts?
The best savings accounts can find a place in many people’s personal financial plan, but it’s important to be aware of the positives and negatives of these financial products.
Pros
- Higher interest rate – Savings accounts provide an effective way to boost your account, typically offering higher interest rates than normal transactional accounts.
- Accessibility – Savings accounts generally let you withdraw money whenever you want, however you may lose bonus interest when making withdrawals.
- Features – Many savings accounts offer features like automatic savings plans, which can potentially make it easier to manage your personal finances.
- Relatively safe – If your savings account is opened with an ADI, the government will guarantee up to $250,000 if the lender goes bust.
Cons
- Variable interest rates – Savings account interest rates are subject to change, and depend upon announcements from the Reserve Bank of Australia (RBA) and each lender’s policies. Potentially, this could see your savings account receiving a lower interest rate down the track.
- Accessibility – The temptation to spend money in a highly accessible savings account might be high, which reduces the likelihood that you’ll save it.
- No lock-in periods – This can potentially reduce the incentive to commit to regular deposits.
