Savings: What the advertisements won't tell you

Savings What the advertisements won't tell you

The banks and non-banks who spend the most money advertising their savings accounts are not necessarily the ones that deserve your loyalty, writes Jackie Pearson.

January 14, 2010

Should you believe the catchy slogans and big rates in newspapers and online advertisements or are you better off doing your own research to find the best deals?

The sole purpose of any advertisement from a bank or other deposit-taking institution is to make money. So don’t overlook the advertiser’s primary motive when you consider taking up their latest offer.

The banks make decisions about what and when to advertise based on how they can maximise their profits. For example, earlier in 2009 when official interest rates were on their way down there was saturation of advertising of online savings accounts.

That’s because their interest rates are variable and can be adjusted as soon as the Reserve Bank of Australia (RBA) announces an official rate change. In a climate where rates were likely to go down, the banks did not push term deposits in their advertising campaigns.

If anything they wanted to discourage savers from locking in to a rate for 12 months; they could get away with paying you less interest if you opted for a variable rate online account.

As rates started to move up again in the latter months of 2009 the opposite became true. Advertisements for online accounts became less prevalent and those for term deposits became more common.

Relatively new brands in the Australian marketplace, such as ING Direct and Bankwest have spent substantial advertising budgets cementing their position as “market leaders” who offer the “best available rates”.

Five years after the introduction of online savings accounts to the Australian marketplace the ING Direct Savings Maximiser and BankWest‘s TeleNet Saver are still in the top 10 accounts for interest rates so they still represent reasonable value for money.

And online savings accounts as an aggregate continue to pay better interest rates than cash management accounts, bonus savers or term deposits. However, the generosity of their rates has halved between January 2004 and January 2009, according to RBA statistics.

For example, in January 2004 the margin between the average online savings account interest rate and that paid by cash management accounts was 2.45 perecnt; by January 2009 the margin had narrowed to 1.2 percent. There has been a similar “shrinkage” in the margin between online savings account interest rates and those paid by bonus savers and term deposits.

So the moral is to always look further than the latest advertising campaign. Do your own research and comparison shopping to ensure you end up with the best available deal. Don’t get too attached to any particular brand – they may earn your loyalty with generous interest rates but that doesn’t mean they’ll continue to lead the market indefinitely.


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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 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.

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)

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 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 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 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

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