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How does a locked savings account help me save money?

How does a locked savings account help me save money?

Many Aussies have regular savings accounts, which they may use to channel their salaries or rainy day funds into. Money can be taken out when it’s needed, which can be great for flexibility but not so great for those wanting to build up their savings. It’s also difficult to earn much interest if money is frequently withdrawn. 

For this reason, some people look at high interest locked savings accounts or term deposits as an alternative. Both of these options reward savers for making no withdrawals. 

Often the interest rewards hinge on making a minimum deposit each month and ensuring that the account balance stays above a certain amount. 

How do I lock my savings account?

You can choose one of two options when locking your savings account: a conditional saver account or a term deposit. 

As the name suggests, a conditional savings account may come with a list of conditions you need to meet in order to earn the bonus interest rate. If you open a conditional saver account, you may sometimes earn more interest on your savings if you don’t make any withdrawals in an entire month.

Whenever you choose to make a withdrawal, you’ll lose out on the higher interest rate that month, although your savings account balance will sometimes still accrue interest at the regular rate. Consider checking the other conditions that may apply to make sure you don’t lose out on the higher interest rate for reasons like not depositing a set amount of money each month. 

With a term deposit, on the other hand, you won’t be able to touch the money in the account for the duration of the deposit. 

In exchange, you may be able to earn much more interest than you might with a regular savings account. If you want to withdraw money from a term deposit, you’ll often have to lodge a request in advance, sometimes giving a 31-day notice. 

Withdrawing funds from a term deposit can also attract a penalty. Again, you may need to make a deposit every month until the deposit matures, or reaches its term. 

While term deposits offer a more certain way of holding - and growing - your savings, you usually won’t be able to access the money if a rainy day comes along. 

When can I put a lock on my savings account?

You may find locking your savings account helpful if you are struggling to build up your savings for, say, depositing a home loan. 

Even if you do manage to set aside some money each fortnight or month, a locked savings account can help you earn more interest on the amount. Keep in mind that interest rates are at record lows and savings rates may not be as competitive as they have been in the past. 

One of the major caveats - or bonuses, depending on your point of view - is you need to resist making impulse withdrawals or you will sacrifice the higher rate of interest.  

If you’re looking to lock away your savings account, it may be worth comparing the interest rate on the locked account with your regular account to make sure you are getting a significantly higher rate. 

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This article was reviewed by Kate Cowling before it was published as part of RateCity's Fact Check process.

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