The latest saving fad is here

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Andrea Sophocleous investigates the latest saving fad and the tricks and traps of making the most out of savings accounts.

September 16, 2009

UBank, an online bank backed by NAB, is currently promoting the benefits of saving through the catch-cry "Saving is the new spending". At a time of economic volatility, excessive spending is out and shrewd saving is in.

Choosing the best savings account, however, can be a daunting task, with many factors to take into consideration.

Banks and financial institutions offer different savings accounts, with varied terms and conditions, minimum opening balances, interest rates and annual fees. One of the first things to consider, for example, is whether to opt for a savings account that offers a bonus rate or one without.

The Reserve Bank of Australia's slashing of the base interest rate last year has meant interest rates on savings accounts have also declined. As a result, banks are trying to lure new customers by offering bonus rates on savings accounts - for example, an extra 1 percent above the regular interest rate - if you meet a list of conditions.

These conditions can include maintaining a minimum balance, making a deposit at least once a month and not making any withdrawals.

Accounts with bonus rates work in the same way as regular, high interest savings accounts - with a twist. You accrue interest daily at the bank's base rate, and at the end of the month, if you've met the set criteria, you qualify for the additional bonus rate.

While some people might find the minimum criteria a little restrictive, they are an effective way of forcing yourself to change your spending - and in effect your savings - habits.

However, it is worth keeping in mind that bonus rates are a short-term marketing ploy to attract your money. Once the bonus rate expires, the interest rate will revert to the individual bank's base interest rate. And with base rates as low as 0 percent, shopping around to identify the most generous bank is essential.

Currently, a number of financial institutions are offering additional bonus rates for an introductory period on their high interest savings accounts, with a number of accounts delivering a bonus-boosted interest rate of 4.75 percent p.a.

The ING Savings Maximiser, the original high interest savings account, offers a standard variable base rate of 3.5 percent and a bonus rate of 1.25 percent (bringing the interest rate earned to a total of 4.75 percent) to new accounts opened before November 30.

There are no fees and no minimum balance, but like all bonus rate offers, it has a limited shelf life - the account will revert to the bank's standard variable rate after January 31, 2010.

HSBC's offer of a bonus-boosted 4.75 percent interest rate on any Serious Saver accounts opened before November 30, on the other hand, this lasts until March 15, 2010. The Citibank Ultimate Saver matches the 4.75 percent rate, with the help of a 1 percent bonus rate, for the first three months of any new account. But there's a catch - the bonus rate is only paid on balances above $10,000.

One of the most attractive savings accounts on the market at the moment, however, is UBank's USaver account, which boasts the highest base rate going at 5.11 percent p.a.

Your savings could end up with a bigger boost than the average bonus rate offered by other banks, but UBank does not stipulate how long that rate is likely to last. And if you set up a monthly savings plan for $100 or more with a USaver account, UBank will throw in an extra 0.1 percent bonus rate.

The banks adjust their variable interest rates depending on movements of the cash rate by the Reserve Bank of Australia as well as swap rates, and with talk of upcoming rate rises, savings rates will only get better.

Either way, any financial decision requires careful research and choosing a savings account is no different. Be sure to do your homework and compare the options on offer.

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