With dozens of lenders offering hundreds of different savings accounts, finding the one with the highest interest rates is no easy matter.
To further complicate matters, the market is constantly moving, so lenders that offer high rates today might offer low rates tomorrow, and vice versa.
That’s why it pays to shop around before opening a savings account – and to then review the market every 12 months.
How? The simplest way to research interest rates is to search on a comparison site, like RateCity. You can quickly find out who’s paying what, as well as some of the associated conditions.
Read the fine print
It’s important to carefully read the fine print before you sign up for a high-interest savings account. That’s because you often have to meet certain conditions if you want to qualify for the highest interest rate.
Typical conditions include:
- Depositing a certain amount of money into your account each month, or increasing your net balance by a certain amount each month
- Limiting your monthly withdrawals – perhaps to one, or even zero
- Keeping your balance within a certain range
- Using a linked product, such as a transaction account or credit card
Lenders that impose these sorts of conditions often pay a significantly lower interest rate in the months when those conditions aren’t met.
Bonuses can have a sting in the tail
While you’re reading the fine print, make sure you check for short-term bonus rates.
Bonus rates are a ploy lenders use to win new customers.
Here’s how they work. The lender pays extra interest for a brief period after you open the savings account – the first three months, for example. Once that period ends, you get moved to the standard interest rate, which is often significantly lower.
These bonus rates can be as high as two percentage points – which is why lenders like them. That way, a lender might be able to tell potential new customers that its savings account pays up to 3 per cent interest, instead of just 1 per cent.
Another option for you to consider
Do you have a mortgage offset account? If so, you might be better off ignoring the high-interest savings account and depositing your money into your offset account – provided the interest rate on your home loan is higher than the interest being paid by the savings account.
Here’s how it works.
Imagine you have a home loan with an interest rate of 4.5 per cent. And imagine you owe $300,000 on this loan and have $50,000 in your offset account. In that scenario, the lender would charge you 4.5 per cent interest on $250,000 rather than $300,000. Effectively, then, the $50,000 in your offset account would be earning 4.5 per cent interest.
Now imagine that the highest interest rate you could find with a savings account was 3 per cent. In that case, your choice would be between putting future savings into an account that pays 3 per cent interest, or putting it into an offset account that effectively pays 4.5 per cent interest.