Are savings accounts free?

Are savings accounts free?

They say there’s no such thing as a free lunch, and the same can be said about savings accounts.

While many savings accounts in Australia will not sting you with ongoing monthly fees, you’ll still potentially have to jump through hoops to keep your account and earn the highest bonus rate.

So, can a savings account ever truly be free? And how do you ensure your savings account is working its hardest for your rainy-day fund? Here is everting you need to know about keeping costs down on savings accounts.

Is a savings account really free?

At the end of the day, a savings account is still a financial product offered by a provider. These providers, whether traditional banks or online competitors, need to make money.

While your savings account provider cannot necessarily charge you interest for having an account, like one would with a loan or credit card, it can earn its profits from charging you fees and ongoing costs.

Typically, the older financial institutions will carry greater fees and lower interest rates. Newer, online-or-app-based providers are able to keep overheads low by not paying for expenses like branches, and therefore generally offer higher interest rates and lower fees. This is not a hard-and-fast rule and can depend on the institution and the type of account. But it is worth keeping in mind when doing your savings account research.

What savings account fees are there?

There are a range of savings account fees you may he hit with, depending on your provider and the account type you choose. These include:

  • Account keeping fees
  • ATM fees
  • Withdrawal fees
  • Overdraw fees
  • Foreign transaction fees, such as currency conversion fees 

You may be hit with one more of these fees for transferring, withdrawing or direct debiting your savings.

If you’re unsure just what fees you may be facing with your current savings account, hop online and take a look at your providers’ website. There you’ll be able to see the Product Disclosure Statement (PDS), which should outline any potential fees and costs, as well as the base rate and maximum rate earned on your account.

What other ‘costs’ can a savings account have?

It’s not just fees that you’ll need to look out for with a savings account, but the other ways your provider will make you pay for your account - aka conditions. Jumping through various hoops for a savings account provider is one way you ultimately have to “pay” for your account, regardless of the fees charged. 

Some savings accounts come with conditions that need to be met by the account holder in order to receive the highest bonus interest rate possible. While you can simply ignore these conditions, or just look to introductory savers with low base rates and no bonus rate criteria, you may miss out on the most fundamental part of a savings account: earning a high return.

The highest interest rates are reserved for savers who meet all of a provider’s conditions. These may include:

  • Depositing a minimum amount each month into your savings;
  • Keeping your savings balance above a minimum amount;
  • Making no withdrawals or direct debits to your savings;
  • Having linked financial products, such as everyday transaction accounts; and
  • Keeping minimum balances or account deposits each month in said linked accounts. 

By opening linked transaction accounts with your provider, you’ll also run the risk of being stung with a whole new raft of fees for said transaction accounts. Further, to meet some conditions, you’ll effectively need to overhaul your entire personal finances, such as having your income deposited into your new linked bank account, setting up direct deposits each month into your savings account and budgeting accordingly.

While these conditions aren’t necessarily a difficult thing to meet, you are still paying for your savings account by bolstering the providers books by opening more accounts and keeping a higher account balance than you otherwise would have.

How do I keep costs as low as possible on my savings account?

With all that being said, there are ways you can keep costs low on your savings account. This includes: 

  • Introductory (standard) savings accounts

This type of savings account does not typically come with conditions that need to be met. You will earn a competitive rate for a set period of time at the start, but your interest rate will then revert to a lower, standard variable rate for the time you have the account. This is a more set-and-forget kind of savings tool.

  • Do your research

One of the best ways to keep fees low and choose manageable conditions is to do your research before choosing a savings account. Simply staying with the same account you’ve had since you were a kid may mean you’ve never done your due diligence about checking for fees or even seeing if there are higher interest rates available on the market. 

Use comparison tools, such as tables, to filter down and compare savings account options. You’ll be able to expand the ‘more details’ section to see a breakdown of any potential fees charged. As many accounts charge minimum, if any, fees at all, this is a helpful way of weaning out high-fee accounts. 

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Learn more about savings accounts

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.

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 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 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 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 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. 

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 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.

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 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.

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 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.