Savers set to score

Savers set to score

Last week’s Reserve Bank of Australia cash rate freeze announcement was good news for variable borrowers, with repayments on hold for at least the rest of the month. But new research has revealed there is even better news for Aussie savers, with saving interest rates on the rise – some almost twice as high as the current cash rate.

The research, by RateCity, shows stiff competition in the savings sector with some interest rates listed as high as 4.6 percent (at the time of writing), that’s 2.10 percentage points above the cash rate.

It found that one in five online savings accounts has a maximum rate of 4 percent or higher, and ranging up to 4.6 percent. That is 0.11 percentage points above the lowest variable home loan rate of 4.49 percent.

With some saving interest rates now higher than some variable home loan rates, money savvy Australians can start taking advantage of the competitive savings space and start earning real rewards for every dollar they put away.

“If your savings account doesn’t have a ‘4’ in front then it’s time to shop around and get a better deal,” Alex Parsons, CEO of RateCity.com.au, said.

“Interest rates haven’t favoured savers in recent years, and even now the average online savings rate is just 3.14 percent, while the top 12 month term deposit rate is 3.9 percent on $50,000 deposits. Yet there is competition at the pointy end of the market.”

Parsons recommends shopping around and comparing a range of online savings accounts, outside of just the big top four banks.

“It’s not just the big four banks that offer attractive rates for online savings accounts – smaller banks like UBank, ME Bank RaboDirect and ING Direct all offer great rates now,” he said.

Australian Bureau of Statistics (ABS) figures show a rising trend in cash deposits Australia-wide, which could be the result of people saving to get into the competitive housing market while low home loan rates continue to hold.  

“We know there is strong demand for high deposit rates from households, which have a record $831 billion in cash and term deposits, according to latest ABS figures,” Parsons said.

“ABS data shows deposits represented 22.1 percent of household financial assets in the December quarter, compared with the decade average of 20 percent.”

With saving interest rates attractively high and households now more engaged in regular saving, it’s a great opportunity for Australians to shop around for a competitive deposit account that is going to allow individuals and families to achieve their saving goals.

“Not surprisingly, the first thing most people look at to compare savings accounts is the interest rate,” he said. “It’s a good place to start, but you need to go one step further and look at the bonus or promotional rate.”

“Deposit accounts is one area of the banking and finance market that’s incredibly competitive, where ‘switching costs’ are low, and information is plentiful. There’s no reason to be stuck with a low-interest account, so compare online savings accounts and start generating more interest income today.”

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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

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 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.

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.

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.

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 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 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.

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. 

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 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.

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.