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.

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. 

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 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 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 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.

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 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.

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)

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.