How to get more out of your savings

How to get more out of your savings

September 4, 2009

Jackie Pearson investigates strategies with savings accounts you can use to make your money grow, even during tough economic times.

Fears about rising unemployment and the many headlines about investment and superannuation losses have been just the tonic for many households to review the way we manage our money in order to make it grow.

But how do you find the right strategy in order to save more? And how do find the right savings account to turbo-boost your balance and enable you to achieve your savings goals faster?

Depending on your situation, there are many different ways you can compare savings accounts and choose the right savings solutions that work best for you. Here’s how three Australian households have used the economic downturn to pump up their savings.

Case Study #1
Linda, from Adelaide wants to save $15,000 by November 2010, when her daughter plans to get married. Based on her current income and expenditure levels, Linda thinks she can comfortably save around $500 a fortnight towards her goal.

Her starting point is zero, which means she needs to find an account that doesn’t require a high balance before she starts earning a good interest rate. She also needs to find an account that will penalise her if she withdraws money to encourage her to save, but still wants easy access in case of emergencies.

If, for example, Linda was to open a Westpac Reward Saver account by September 14, 2009, with a current interest rate of 4.7 percent, Linda would need to save $487 per fortnight to achieve her savings goal of $15,000 by the end of October. This account ticks all the boxes for Linda as it doesn’t have a minimum opening balance .

It also charges $2.50 per EFTPOS or transaction which is a significant enough penalty to stop unnecessary withdrawals but doesn’t tie Linda’s money up in case of emergencies.

The 4.7 percent interest rate includes bonus variable interest of 2.9 percent. This rate is only achieved if a minimum deposit of $50 is made each calendar month as well as no withdrawals for that month. It also includes a special bonus fixed interest rate of 1.8 percent for the first four months and the previous conditions also apply so no withdrawals and minimum $50 deposit.

Case Study #2
Steve from NSW has saved just about every cent of the government stimulus payment he has received and he banked last year’s tax refund. His savings goal is to grow the money in order to pay for home renovations including to build a guest room for his elderly parents.

Steve currently has $6,000 and thinks the job will take $12,000 and he wants it finished as quickly as possible.

He wants to stick with his current bank, NAB as his savings are currently in an NAB Smart Reward Saver, which pays 2.61 percent p.a. interest if you make at least one deposit and no withdrawals, and has a $3 monthly fee if more than two transactions are made. If Steve saves an additional $300 per fortnight, his balance will grow to $14,057 within a year.

If Steve were to switch to the Bankwest Smart eSaver account which is fee-free and pays 4.5 percent p.a. interest if you make no withdrawals, his balance after a year would be about $14,247 – $190 more than the NAB account.

Below are RateCity’s top five savings accounts based on a $5,001 deposit as at September 3, 2009. When comparing online savings accounts, be sure to check the terms and conditions as bonus rates and promotions may have expiry dates.

  1. UBank USaver – 5.11percent
  2. Westpac Reward Saver – 4.70 percent
  3. St Geroge Directsaver – Account 4.50 percent
  4. Bankwest Smart eSaver – 4.50 percent
  5. ING Direct Savings Maximiser – 4.50 percent


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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.

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 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 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 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 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.

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.

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 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 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 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.

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.