Spring clean your bank for a better return

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Chris Walker reports on the best strategies for working your spare cash harder in an online savings account.

November 4, 2009

As inflation and interest rates creep up, it's worth sweeping any spare cash into a savings account to make your money work harder.

Everyday accounts are an essential workhorse. Trouble is, they pay little or no interest, and that means missing out on valuable interest income.

Online banking provides a useful opportunity to put your spare cash to work simply by sweeping excess funds out of your debit account and into an interest-bearing online savings account, then transferring the money back again when you need it. Even if the funds earn interest for just a few days or weeks, your returns can build over time.

This type of strategy works best if you're quite clear about when bills or loan repayments will be debited from your transaction account. It's important to have sufficient funds to cover these payments when they fall but outside these occasions, you may only need a small balance in your everyday account to cover daily living. Once you've determined this minimum balance, the trick is to select an online saver combining flexibility with worthwhile returns.

There are over 500 savings accounts listed on RateCity. All vary widely in terms and conditions, and it pays to check these carefully.

Some online savers stipulate that the linked transaction account (which lets you access your online funds) is held with the same institution. Others are more flexible and can be linked to outside accounts. This avoids the hassle of having to change your transaction account though there can be advantages in holding both accounts with the same institution.

As a security measure most banks set daily limits on the funds that can be transferred into and out of accounts held with other banks. No such limit may apply to accounts held within the same institution, which is helpful if you're transferring large sums.

Additionally, it can take a full working day for funds to be transferred between different institutions, and that can mean losing a day's worth of interest income on your savings. Transfers made within the same bank are generally instant, so your money goes to work straight away.

Chances are, the institution you hold your everyday account with also offers an online saver, and it's definitely worth asking about. Even if the balance of your savings averages around $2,000, at today's rates it's possible to let your spare cash earn annual interest of around $100. Hardly a king's ransom, but still a boost to your hip pocket.


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