Online or old-fashioned savings accounts: What's best for you?

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Andrea Sophocleous investigates what makes a savings account the best fit for you.

December 1, 2009

Since the introduction of the first online savings account by ING Direct in 1990, Australians have taken to online accounts like ducks to water. Over one million Aussies have an ING Savings Maximiser account, and plenty more have opened online high interest accounts with the likes of the big four banks and other players, such RaboPlus.

“Currently 52 percent of the Australian adult population claim to prefer using direct channels to conduct banking activity,” says Gerd Schenkel, general manager of UBank, the online banking arm of NAB. “The direct banking market has experienced significant growth over the past five years and we estimate it to grow at 10 percent p.a. for the foreseeable future.”

The Commonwealth Bank (CBA), Australia's largest bank, is also enjoying success with its online savings account, NetBank Saver, introduced in 2005. “NetBank Saver is definitely our strongest product,” says CBA chief marketing officer Mark Buckman.

“It grew by 50 percent in the past 61 weeks [to the start of November 2008], and contributed about 75 percent of the overall growth in savings.”

For customers, the benefits are obvious: lower overheads for the financial institutions translate to lower fees, or usually no fees at all. The interest rates are also generally higher than “old-fashioned” savings accounts, for the same reason.

And there is no doubt online accounts can help you save faster as they offer the highest interest rates on the market.

The good news is that from January 22, 2010, NAB will scrap the monthly account fee on 12 of its transaction and savings accounts, including its Classic and e-Banking accounts. At an average of $5 per month, you'll end up with an additional $60 a year in your pocket.

Nevertheless, to work out if an online account suits your needs, you must consider its restrictions.

For starters, making withdrawals are discouraged – it can negatively affect the interest you earn. Online accounts also have to be linked to a transaction account, from which to draw regular deposits. And again, the only way to access the money is to transfer it back to the linked account. ATM facilities and branch access are not generally part of the online world.

You should also be aware of bonus and introductory rates. Banks use “bonus” rates to lure new customers to their online savings products, but these generous rates are purely a wooing tactic and do not last long. When you are researching your savings options, look at each bank's average interest rates for a more accurate picture of its generosity.


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