Earn easy money by switching

Earn easy money by switching

You could be missing out on thousands of dollars in interest by sticking with the same old savings account , writes Jackie Pearson.

How many years is it since you had a long, hard look at the performance of your savings account? Misguided loyalty to your bank or just plain laziness could be holding you back from achieving your savings goals faster.

Let’s say you currently have $5,000 sitting in an account that earns you no interest but still charges a $5 monthly account-keeping fee. If you were to deposit $100 per week for the next five years, the account balance would grow to $29,700. That’s the $31,000 you’ve saved less $1,300 in account fees. And you haven’t earned one cent of interest.

What would happen if you switched to a high-interest earning account, such as the UBank USaver? You would potentially earn about $4,833 in interest alone if you followed the above savings plan, and pay no account keeping fees.

Why stay trusted to your bank?

Choice spokesperson, Christopher Zinn, says it is definitely worthwhile reviewing your savings account and shopping around for a better deal regularly.

However, he’s not surprised by recent UK research by Saga Personal Finance that states consumers tend to hold on to the same savings account for an average of 10 years. The report also found that 61 percent of people don’t know what interest rate their current savings account is paying.

“Generally we are inclined to hold on to our accounts in Australia; we tend to be rusted on to the big four banks in general,” says Zinn.

“But the point is products and offers change and if you can move you can get a better deal,” he says.

For example, out of the 370 savings accounts currently listed on RateCity (which includes pensioner deeming accounts, childrens’ accounts, community and Christmas club accounts) the vast majority pay a base interest rate of 2 percent of less. Twenty currently pay no interest whatsoever, and the bottom 100 accounts pay a base rate of 0.1 percent or less.

All the major banks have savings accounts which most pay a comparatively low interest rate so chances are, says Zinn, if you have been with the same bank for years and haven’t checked your account lately, you could be doing better elsewhere.

In your interest

Switching savings accounts is much easier than changing your everyday transaction account if your transaction account is linked to your mortgage or credit card, according to Zinn. And if you have an unnecessary high balance in your transaction account, you should consider moving some of the money to a high-interest earning online savings account.

“Choice recommends online savings accounts because the interest is calculated daily and paid monthly, there are no account keeping fees, they are easy to open and you don’t always have to complete the 100 point ID check,” he says.

Beyond the honeymoon

Zinn cautions that some savings accounts are currently advertising a high “headline” interest rate but it is for a limited time only. He says it’s important to check what the rate reverts to at the end of the special offer.

“Honeymoons, whether in real life or in banking need to be gone into with your eyes open.

“Unlike in real life where there can be some romance attached, banking is a business, but unlike real life you’re not bound by a ring or vows so you can always make a better return by looking elsewhere,” Says Zinn.

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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.

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 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.

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 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 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

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

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.

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)

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 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 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.