# Calculate savings interest

Saving money isn’t always an easy task. However, if you’re saving towards a goal, whether it be for a deposit on a home loan, a car or a holiday, a high-interest savings account can help you to reach your goal sooner.

### How interest is accrued

To calculate savings interest, you’ll first need to consider how often interest is calculated and paid, in addition to the rate of interest paid.

Simple interest is interest paid on the original amount invested. The amount of simple interest on any principal is calculated by multiplying together the principal and rate of interest by the amount of time you save in an account.

For example, if you deposit \$1,000 into an account paying a rate of 2 per cent per annum, 12 months later you would have accrued \$20 interest (assuming you didn’t make any withdrawals from the account).

Compound interest, on the other hand, is described as ‘interest on interest’.

To continue the above example, at the end of the first year, your balance would have grown from \$1,000 to \$1,020. So you would then earn 2 per cent of \$1,020 rather than 2 per cent of \$1,000. (Again, this assumes you haven’t made any withdrawals.)

Whether you earn simple interest or compound interest, if you’re serious about saving, the interest you earn can really add up, particularly if you make regular deposits to the account.

For example, if you put an initial \$2,000 into a savings account at a rate of 5 per cent and deposit \$400 each month, you could have \$17,424 saved within three years, so long as you don’t make any withdrawals. A total of \$1,424 of that amount would be interest you have earned.

### What you need to know

To work out how long it will take to reach your savings goal, use RateCity’s savings account calculator.

To calculate savings interest you’ll need to know how much you will be starting with, how much will be put into the account each month and what interest rate you will be offered. Having a goal will help too!

For example, if you want to save at least \$10,000 within three years and you’re starting from scratch, then you’ll need to deposit around \$300 per month into a savings account paying 5 percent interest p.a. At the end of the period you’ll have more than reached your goal with \$11,326 banked (minus any fees and charges and tax) so long as you don’t withdraw money.

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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 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.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least \$10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

What are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO.

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

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 Westpac locked savings account?

The Westpac locked savings account (also known as "Westpac Life") can help customers reach savings goals faster through bonus interest. Customers receive 0.2 per cent standard base interest with a variable bonus rate of 0.35 per cent when the closing balance at the end of the month is higher than the opening balance.

There are some conditions to earn the bonus interest on Westpac's locked savings account, though. First, you’ll need to increase the balance each month either through a deposit or not making any withdrawals, and then link it to a Westpac Choice account and make at least five eligible payments using your debit card. Please consult your bank as to what an eligible payment is.

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.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up.

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money.

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits.

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

• Depositing a fixed minimum amount into the account every month.
• Making a fixed number of deposits each month.
• Making a minimum or no withdrawals each month.
• Maintaining a minimum account balance.

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than \$1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to \$100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.

How can I get a \$4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

• Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
• Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
• Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

What are the requirements for opening Commbank multiple savings accounts?

Existing Commbank account holders can open additional accounts online You can open multiple savings accounts with Commbank to meet various goals like a down payment for a home or buying a car.

To open an account, you’ll need the following:

• An Australian residential address
• To be 14 years or older
• A Tax File Number (TFN) or TFN exemption.
• Tax residency details

If you’re not a current Commbank account holder, you’ll need an Australian driving licence, birth certificate or passport and Medicare card. You may also have to visit a branch if your identity cannot be confirmed online.

Do banks run credit checks on savings accounts?

When you apply to open a new savings account, some providers may conduct a credit check, meaning that they will ask a credit bureau for your credit history. This isn’t always the case on savings accounts though and depends on the provider, as you aren’t borrowing money.

As you are opening a savings account and not borrowing funds, this credit check is considered a soft inquiry and should not affect your credit score. If the bank has run the credit check, you can often still open a savings account even if you have a poor score, provided you meet other requirements.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts.

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower.

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month.

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information.