Fast ways to grow your savings this party season

Fast ways to grow your savings this party season

Grow your savings this party season and kick off your heels while your cash kicks into overdrive

By Andrea Sophocleous
September 25, 2009

We are well and truly into Spring and galloping towards the party season. From Melbourne Cup – no longer reserved for Melbournians – to endless Christmas parties and New Year’s Eve, Spring and the beginning of Summer are undoubtedly the year’s busiest months on the social calendar.

All the extra fun and party frivolity, however, can end up putting a strain on the purse strings. Which is why keeping your hard-earned cash in a high interest savings account will ensure you continue to boost your bank balance while you kick up your heels.

The USaver account, through NAB‘s online bank, UBank, currently offers the highest interest rate on the market – a generous 5.11 percent p.a. This is calculated daily and paid monthly when you do not make any withdrawals, and there are no fees. Citibank, HSBC and ING Direct all have savings accounts offering 4.75 percent p.a. interest rates, and Westpac‘s Reward Saver pays out an interest rate of 4.70 percent p.a.

Of course there are hundreds of savings accounts out there, and the best way to find the one that suits you is by searching and comparing interest rates, fees, conditions and anything else on your checklist of requirements.

The great thing about a lot of these savings accounts is that they encourage you to set up regular contributions through direct debit. So you could be making fortnightly or monthly deposits into your savings, therefore boosting not just your balance but also the amount of interest you earn, while you boogie on the dance floor.

For example, if you start a UBank USaver Account with an opening balance of $1000 and save $400 a month, you will earn $27 in interest and more than double your savings to $2,500 within four months – that is, by the end of the party season.

UBank is also offering a bonus rate of 0.10 percent p.a. if you set up a monthly automatic savings plan for $100 or more, which can help boost your earnings further.

Credit unions and building societies offer special Christmas savings accounts, designed for the purpose of Christmas spending, but with the majority of interest rates on these hovering around the 2.50 percent p.a. mark, you are better off sticking with a high interest account from the banks.

Some credit unions are also only open to employees within a certain industry or company, and their family, so research is essential.

Term deposits are also a great way of making your money work harder, generally paying more interest than a savings account. Unlike savings accounts, however, you cannot access the money for the duration of the term deposit – this can range from 30 days for a quick interest earner to five years for longer-term goals.

Naturally, the longer the period of the term deposit, the higher the interest rate. For example, a 90-day term deposit with Heritage Building Society will earn you 4.35 percent p.a. interest on maturity – one of the best rates going – while a 30-day term deposit attracts up to 3.50 percent p.a. interest. Rates for one-year term deposits are currently from 5.26 percent p.a., while for a five-year term deposit, RaboPlus is offering a 7 percent p.a. interest rate.

Speculation that the Reserve Bank of Australia will increase the official cash rate from its current 40-year low of 3 percent as the economy improves means interest rates on savings accounts will also swing upwards, but it’s hard to know when this will eventuate.

The RBA meets on the first Tuesday of every month, so the next opportunity to discuss raising the cash rate is on October 6, with many observers anticipating an increase.

It is also likely that banks may introduce promotional rates or specials for the holiday season, but the big four declined to reveal their plans when approached, citing commercial sensitivity. Rather than wait, you should research the best options on offer right now, to ensure your money works hard while you party hard.

 

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Learn more about savings accounts

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 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.

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.

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 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.

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 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 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.

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 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.