Cook up a storm: the right ingredients for a healthy bank balance

Cook up a storm the right ingredients for a healthy bank balance

RateCity looks into why Australians are stashing their money and shows you how you can get in on the action.

July 28, 2010

Australians love cooking good food. By following the recipe and adding the right ingredients, your efforts will pay off with a healthy investment at the end. Recently, Australian households have been using this approach and applying it their savings.

According to research from the Australian Prudential Regulation Authority (APRA) of May 2010 figures, the amount of money that Australian households are depositing into banks is on the rise. The research showed the Australian households have more than $457.8 billion in bank accounts. This is an increase of more than $27.9 billion since May 2009, when households stashed more than $429.8 billion into bank accounts. The same time two years prior, in May 2008, $357.1 billion were deposited by households, showing an increase of more than $100.6 billion.

It is evident that Australians have pulled out of higher risk investments such as property and shares due to a volatile market since the global economic crisis, and as a result have been depositing their money into bank accounts. But are you leaving your cash in a low-interest bearing account or are you making the most of unusually high returns that many financial institutions are currently offering?

Australians can earn more with savings accounts
Online savings accounts are one of the safest forms of investing your money, as not only can they offer a higher rate of interest, they can be guaranteed to make a profit.

RateCity recorded that interest rates for online accounts have risen by 1.43 percent from May 2009 when the average online savings account rate for a deposit of $5000 was 3.23 percent to 4.67 percent in May this year. Currently, in July, the average online savings account rate is at 4.85 percent.

Make the most of now
Much like a great meal, online savings accounts are an easy investment when the right ingredients are added. The only ingredients required are an account, some money and then you need to give it some time and let it simmer till it’s done (pardon the pun).

Even if you don’t have some money put aside, take advantage of great rates for online savings accounts. Currently RateCity’s best online savings account is 1.66 percent higher than the current average online saving account rate, allowing you to earn even more. For example, if you deposited $5000 at rate of 6.51 percent with UBank (RateCity’s best rate, as at July 26, 2010) then continue to add $200 each month for a year, you could earn over $408 in interest and will save over $7800.

Get your ingredients together, compare savings accounts to start cooking and invest your wealth.

 

 

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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 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.

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.

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 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

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 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. 

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

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.

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.

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.

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.

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)