Online savers up the ante with generous rates

Online savers up the ante with generous rates

Andrea Sophocleous reports on when to let the banks woo you on a great deal.

March 17, 2010

We love to hate them, but the banks are doing their best to woo us, or at least to convince us to entrust our savings to them.

As Australian financial institutions continue to find it difficult and more costly to borrow money on the international markets, they are turning to us to fill in the gap. Our savings dollars are undeniably valuable to banks, which need easy access to cash. As a result, competition for our savings is heating up.

The most obvious manifestation of the banks’ attempt to snare a bigger slice of savings is the rapidly growing interest rates being offered by online savings accounts.

ING Direct is the latest to hit the top five list of RateCity’s best online savings accounts, currently leading the charge with a 5.85 percent p.a. “welcome” interest rate on its Savings Maximiser account for the first four months. Bankwest begun the trend in mid-January, raising the rate on its TeleNet Saver account to 5.62 percent, but it has been overthrown by UBank‘s USaver and RaboPlus’ Premium Saver with rates of 5.75 percent p.a.

These favourable rates sit comfortably above the cash rate of 4 percent as set by the Reserve Bank of Australia.

“It is historically unusual for online savings account rates to be so much higher than the cash rate,” says RateCity CEO Damian Smith.

“Typically online savings accounts will be on par with the cash rate but since the global financial crisis when funding was hard to come by, banks raised their rates to acquire more capital.

“With funding expected to remain tight this year, we expect online savings accounts will continue to be an easy option for financial institutions to acquire capital and rates are likely to stay historically high.”

UBank General Manager Gerd Schenkel admits interest rates on savings accounts will remain competitively high for the foreseeable future. “Deposit rates continue to be driven by the value banks place on them in light of their funding needs, rather than the cash rate. This situation is likely to continue while wholesale funding costs remain higher than historical averages and providers adjust to the post-GFC environment,” he says.

UBank intends to maintain its high rate on USaver, Schenkel adds, and is currently developing new savings products.

With such great rates being bandied about, now is the time to start saving. Depositing $5,000 in ING Direct‘s Savings Maximiser account now and adding $1,000 a month, you will earn about $628 in interest in one year alone. In two years, you can earn a more impressive $2,014 and end up with a total of about $31,014 in savings (providing the rate remains the same).

Like any financial decision, before you take the plunge, make sure to research your options to choose the account that best meets your needs.


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Learn more about 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

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.

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.

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. 

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

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

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.

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.

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.

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.

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.

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.