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How to compare banks

Australian banks, also known as Authorised Deposit-taking Institutions (ADIs), may allow you to not only protect your wealth, but potentially grow it. Smart use of different banking products, from everyday bank accounts to saving accounts and term deposits, may allow you to gradually increase your bank balance over time, and help you better reach your financial goals.

ADIs not only include traditional banks, but also mutual banks, credit unions and some online and app-based neobanks. Different banks offer different features and benefits for their customers. When you compare banks, it’s essential to compare the value offered by these features and benefits to the costs that may be involved, and to consider which options may best suit your household’s needs.

While banks and similar financial institutions may offer home loans, personal loans, car loans, credit cards and similar financial services, the core of their business is often based around bank accounts and related products.

Bank accounts

Bank accounts, also known as transaction accounts, are intended for everyday use. You may have your own everyday transaction account, or share one with a spouse or partner as a joint account. 

When you’re paid by your employers or clients, it’s likely that the money will be deposited into your transaction account. And when you use a debit card to withdraw cash from an ATM or make a contactless (tap and go) debit card purchase, the money will likely come out of your bank account by default.

Most bank accounts are offer convenient access to your money, whether through online banking, ATMs, or by withdrawing cash from a bank branch. Some bank accounts may also offer extra features such as access to smart payment systems like Apple Pay, Samsung Pay or Google Pay, or mobile apps to help users with their budgeting and mobile banking.

However, the more features and benefits a bank account offers, the more it may potentially cost in monthly or annual fees – a more basic ‘no-frills’ bank account may charge low fees or even no fees at all.

Does everyone need a bank account?

It may be theoretically possible to get by without a bank account in Australia by making only cash transactions and keeping your wealth as physical assets, such as cash banknotes, gold bars, gems or jewellery. However, finance in Australia and around the world has become increasingly digital, making a bank account more of a necessity to conduct many types of transactions, such as preparing a direct debit for an ongoing expense, paying bills with BPay, or to transfer money via internet banking.

If you’re concerned about the safety of your money in the bank, such as what would happen to it if the bank were to suddenly collapse or go out of business, keep in mind that any money you deposit with an ADI is automatically guaranteed by the Financial Services Guarantee, up to $200,000 per person per ADI. This means that even if the worst should happen, you should be able to get your money back.

How do you compare bank accounts?

Much like other financial products, the best bank account for you may not be the best choice for the next person. Consider what you want from a bank account, what benefits are being offered, and what costs may be involved.

You can use RateCity’s comparison table to view a wide range of bank account options side by side.

Savings accounts

A saving account is a bank account that’s been optimised for saving money. Savings accounts let you earn interest on the money you deposit - the more money you can deposit in a saving account, and the longer you can leave it there, the more you may be able to grow your wealth.

When you deposit money in a savings account, you’re effectively lending this money to the bank for it to put towards providing financial services for its other customers. This means you’re entitled to receive interest payments from the bank, similarly to what you’d pay if you were to take out a loan.

Is a bank account the same thing as a savings account?

While your everyday bank account may sometimes be called a savings account (such as when you’re choosing between cheque, savings or credit accounts on an EFTPOS machine), it may not be the best available option for saving money. It’s certainly possible to save money in your everyday bank account by diligently making regular deposits and minimising withdrawals, however most regular bank accounts don’t pay interest on your savings.

How do you compare savings accounts?

Saving accounts are often compared by their interest rates – the higher the rate, the more interest you may earn from deposits in the account. However, there are other features and benefits to also consider before making an application.

Some savings accounts may charge annual or monthly admin fees – if you expect you’ll be earning less interest from your savings than you’ll be paying in fees, you may want to consider different options. Additionally, if there are terms and conditions on earning the most interest from you savings account, such as minimising withdrawals and depositing a minimum amount per month, you may not enjoy the most value if this does not suit your circumstances.  

Term deposits

A term deposit functions almost like a cross between a savings account and an investment. In this arrangement, you agree to deposit a sum of money with a bank or similar ADI for a specific length of time (or ‘term’), over which you will earn interest on your savings.

Term deposit accounts earn interest at fixed rates, so you can often calculate in advance just how much interest you can earn on a term deposit, they’re often much less risky than investing your savings in other assets, such as shares. Plus, the money you deposit will be guaranteed by the government’s FCS.

However, it’s not always easy to find a term deposit with a high interest rate, so you may not enjoy returns as high as you might with some other asset classes. And even if your lender changes its interest rates during the term, you’ll still be paid interest at the same fixed rate.

Because you agree to deposit your money for a pre-set term length, you won’t have easy access to your money if you need it in a hurry. It’s sometimes possible to end a term deposit early by giving at least a month’s notice, but you may have to pay a penalty fee and/or miss out on some or all of the interest you’d earn.

How do you compare term deposits?

The simplest way to compare different term deposit offers is by their interest rates – the higher the rate, the more you may be able to grow your wealth. Generally, longer terms mean higher interest rates.

You may also want to look into how the interest is paid on your term deposit. Interest may be paid at the end of the term (‘at maturity’) or at regular intervals (e.g. annually, quarterly, or even monthly). The interest may be deposited into a separate bank account, or it may be added to the term deposit balance, allowing you to potentially earn interest on your interest (compound interest).

It may also be worth looking at a term deposit’s rollover options. Some term deposits offer automatic rollover, where when once the term reaches maturity, it will automatically roll your balance over into another term unless you say otherwise – even if the interest rate is no longer as competitive as it used to be. Other term deposits pay out at maturity and require you to notify the bank if you want to roll your balance over.

How to compare bank interest rates

Much like with home loans and personal loans, banks base bank account interest rates on a range of factors, including the national cash rate set be the Reserve Bank of Australia (RBA). However, while borrowers often like to see interest rates decrease, as lower interest charges may help them repay their loans faster, savers often prefer to see interest rates increase, as earning more interest may help them grow their wealth faster.

When comparing bank accounts, many Australians search for the highest interest rates. However, the bank account with the highest interest rate may not always be the best bank account for you. For example, a bank account that pays a higher rate of interest but also charges higher fees or offer fewer features may not provide as much value as some other options.

What are bonus interest rates?

Some bank accounts (most typically savings accounts) offer bonus interest rates to customers who fulfil certain terms and conditions. For example, if you deposit a minimum amount of money each month, and make no withdrawals from your savings account, you may be able to earn interest on your savings at a much higher rate, and grow your wealth faster.  

If you believe that you can fulfil the requirements for a bank account’s bonus interest rates in your normal financial circumstances, you may be in a good position to enjoy the benefits of these higher rates. However, if you think you may struggle to fulfil the conditions to receive the bonus rates, you may want to consider some alternative bank account choices that could offer you more value.

How do you compare bank performance?

One of the simplest ways to estimate the value offered by a bank account is to compare the value of the perks it offers to the costs involved. The benefits may include earning interest on your savings, or access to useful financial features and benefits. The costs could involve fees or other charges, which may you may need to pay annually or when you access certain features and benefits.

What are common bank fees?

Some everyday bank accounts and savings accounts may charge an annual fee to help cover the admin costs of providing the account. The more features and benefits a bank account may include, the higher the fees may be.

There may also be fees involved when you access certain features and benefits of a bank account.

Some of the fees you may encounter include:

  • Establishment fee (paid once, when you first open an account)
  • Monthly account-keeping fee
  • EFTPOS transaction fee
  • Currency conversion fee
  • Branch cash withdrawal fee
  • Phone transaction with operator assistance fee
  • ATM withdrawal fees (such as when using an ATM outside of the bank's serviced network)

Term deposits rarely charge monthly account fees or other ongoing fees, and some are completely fee-free. However, if you exit a term deposit early you may have to pay a penalty fee as well as missing out on some of the interest earnings.  

This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.