Saving: Get more for your money in 2010

Saving Get more for your money in 2010

Jeannie Messer shows how to maximise your return with a high interest savings account.

Happy new decade! If you were part of the credit binge that ended in the global financial crisis, say goodbye to living beyond your means and kick-start 2010 with a high interest savings account. Financial institutions hungry for retail deposits, are using savings accounts as bait, sweetening the hook with interest rates topping 5.6 percent p.a. – comfortably above the current cash rate

With a mountain of products available, it isn’t easy choosing the best savings account for you.  Here’s a simple guide to help maximise your return.

1. Know your product
Online savings accounts generally offer higher interest rates than traditional accounts. Funds are managed over the internet with no branch access.

Bonus saver accounts offer incentives for regular deposits and penalties for withdrawing money – a good option if you struggle with a savings plan.

Term deposits can help you earn the top rate of interest and stop you whittling away your cash.  The minimum deposit is usually $5,000. 

Cash management accounts often require a higher opening balance, but offer better interest rates than everyday accounts with the flexibility of phone, branch and internet access. 

2. Know your needs
Be realistic when considering the features you want. If you make a lot of transactions, you might want to consider paying a monthly fee to maximize your free transactions. Some banks waive monthly fees if you deposit a certain amount each month – helping you get the most out of your salary.  And while term deposits offer a low-risk return at the end of the investment period, if you need to access your account early, you risk high penalties and exit fees.

3. Shop around
Competition for the deposit dollar is hotting up. For example, Bankwest recently launched a zero-fee transaction account, while ANZ offers cash prizes to women savers through its ‘Febusave’ initiative. But remember, look beyond headline-grabbing rates and gimmicks for the best combination of rates, fees, features and access. Some advertised rates are only valid for a limited period, reverting to much lower rates, while conditions such as minimum balances and limits on withdrawals could negate higher monthly rates, particularly in online savings accounts. So before committing any money, read the terms and conditions carefully.

But if you’re prepared to follow these rules and adopt a more disciplined approach to saving, instead of paying interest you’ll start reaping dividends and discover that a penny saved really is a penny earned.

 

 

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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 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 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 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 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.

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 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. 

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.

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 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 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 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.