Savers the winners as banks declare war

Savers the winners as banks declare war

It’s a battlefield out there. Our big banks have declared war on one another, and the victors are savers with cash on deposit. Anthony O’Brien reports.

March 7, 2010

The Reserve Bank’s March rate hike may have sent mortgage holders rushing to rebalance the household budget, but for anyone with cash on deposit, higher rates spell good news. This time around, the interest rate rise on many savings accounts has outstripped the Reserve Bank’s official rate hike, making it even more inviting to put your spare cash to work.

Savings accounts offer cheaper funds than wholesale market
There are good reasons why financial institutions are battling it out to attract household savings. In the aftermath of the global financial crisis, banks often pay more to borrow on the wholesale money market than they pay on consumer savings account.

Banks are especially eager to chase your spare cash because the Federal Government rolled back the wholesale deposit guarantee at the end of March. This won’t affect the security of personal deposits though it adds to the banks’ cost of wholesale borrowing, making your savings even more attractive as a source of funding.

Few savers are likely to worry about why rates on deposit are so strong at present. The bottom line is that now is the time to get a great deal on your savings.

Don’t be fooled by “savings” in the name
While there are rich pickings available for savers, it’s still important to shop around for the best deal. Some of the most generous rates on at-call deposits are being offered by online savings accounts.

Leading the pack is UBank (a subsidiary of National Australia Bank) with its USaver at 5.85 percent p.a. and ING Direct‘s Savings Maximiser also on 5.85 percent p.a. Bankwest‘s TeleNet Saver follows closely behind on 5.75 percent p.a. as well as the RaboPlus PremiumSaver on 5.75 percent p.a.

At the more miserly end of the spectrum, some self-titled “savings” accounts are paying below 1 percent interest.

If you compared these rates to the top online savings account rates, there is a dramatic difference. For instance, if you saved $1,000 each month for one year, you would earn $272 more in interest with a rate of 5.85 percent compared to 1 percent (provided these rates remain the same for the duration). The savings account with 5.85 percent returned $327 compared to only $55.

And swapping say, $10,000 from an account paying 0.5 percent interest to one paying 5.85 percent would mean earning an extra $550 in annual interest.

This makes it worth keeping an eye on the rate your current savings are earning.


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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

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 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

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.

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 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 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.

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 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)

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 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 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 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.