Bye Bye Savings Account Fees?

Bye Bye Savings Account Fees?

We might be seeing a trend to get rid of fees on transaction accounts but what’s happening with savings account fees? Jackie Pearson investigates.

November 4, 2009

Consumer groups praised the National Australia Bank’s recent decision to abolish monthly account keeping fees from its Classic and eBanking personal accounts.

The move (along with its decision to remove its $25 over-the-limit credit card fees and reduce its credit card late payment fee from $30 to $5) will be good news for almost one million NAB customers.

While the other major banks have already received some positive publicity in recent months for changes to penalty fees, the NAB‘s competitors have not, so far, matched this latest move on account keeping fees.

But while there’s movement on credit card and transaction account fees, what about fees on savings accounts?

Already fee-free
The good news for serious savers is that the online savings accounts offering the highest interest rates also come with no monthly account-keeping fees.

In fact, the 12 savings accounts currently offering the highest interest rates available (3.9 percent or more) don’t have account-keeping fees.

Compare transaction fees
You do have to be careful to compare transaction fees, even on the top savings accounts. Because these accounts are designed for serious savers, they discourage withdrawals by charging transaction fees.

For example, you may have to pay $2.50 per withdrawal, even if you use one of your own bank’s ATMs. And, of course, you may not be entitled to receive any bonus interest paid on some accounts in any month that you do withdraw money from the account.

High fees on bottom accounts
Accounts that are not rated by CANSTAR CANNEX or that pay little or no interest are also more likely to slog you with both account-keeping fees and transaction-based fees.

If you have an old-fashioned passbook or cash management style savings account, there is a higher likelihood that you will be paying fees.

With some accounts, not only will you earn no interest at all if your balance is below $25,000, you will also be paying $5 or $6 each month as an account maintenance fee.

On those accounts you could also be paying $1.10 for an Eftpos transaction and $1.50 to withdraw money from your own bank’s ATM. There are better places to keep your savings.

Compare and make the shift
Savers are better off shifting their balances to accounts paying high interest that are fee-free. If you’re a serious saver, there’s no point waiting to find out if the banks will start removing or reducing fees on savings accounts, you’re better off switching to a high-rate, no fee savings account as soon as possible.

 

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.