The short-term solution to grow your wealth

The short term solution to grow your wealth

RateCity shows you one short-term solution to boost your savings and help you reach your savings goal sooner.

May 27, 2010

Are you saving hard for a holiday or a new car or even a deposit for a house? One option to boost your savings and get it to work harder is to put your cash in an online savings account.

Online saving accounts are fighting harder than ever for your savings, following the latest promotion by RaboDirect (formerly RaboPlus) which is now offering a high 6.4 percent interest until December 31, 2010. This is currently one of the highest interest rates on offer for online savings accounts, which is followed by UBank‘s USaver at 6.21 percent – nearly 20 basis points lower than the top rate – as shown below:

RateCity’s top five highest rate online savings accounts (as at June 3, 2010):

  • RaboDirect -high interest savings account at 6.40 percent
  • UBank – USaver at 6.21 percent
  • Westpac – Reward Saver at 6.20 percent
  • Bankwest – TeleNet Saver at 6.15 percent
  • NAB – iSaver at 6.00 percent

What’s the catch?
Be careful of promotional rates and bonus rates when choosing an online savings account as special offers usually come with a set period where the extra interest expires.

For example, RaboDirect’s High Interest Savings Account interest rate comprises 5 percent variable and a bonus 1.40 percent fixed rate until the end of the year. But unlike many other accounts, RaboDirect’s account has no strict conditions to be entitled to the bonus rate. This means that you don’t have to deposit a certain amount each month or make no withdrawals to get the bonus 1.40 percent.

It’s not just for new customers either. However, if you already have the account the bonus rate will only apply to deposits from May 20. After the cutoff date on December 31, the interest rate will revert back to the standard variable rate, which is currently at 5 percent.

The offer is available on all balances of up to $1 million, and there are no fees and no minimum balances required. So if you were to deposit $5000 initially and continue to deposit $200 each month for six months, at the end you will save over $6378 in total and potentially earn interest of more than $178 (if the rate remains the same).

UBank’s USaver account includes a 0.36 percent bonus rate with the condition of setting up an automatic savings plan to have a minimum of $200 automatically deposited from your everyday transaction account to your savings account each month to be entitled to the offer.

Westpac‘s Reward Saver has a base rate of 1.25 percent, a promotional rate of 1.55 percent for four months for accounts opened by June 6 and an extra 3.4 percent bonus interest if you deposit at least $50 no make no withdrawals each month. For these customers, after four months and if a withdrawal is made they will only earn potentially 1.25 percent on their savings.

Get the most out of your savings online
The hard part of saving is choosing and setting up your online savings account but the easy part is seeing your money grow and reaching your financial goal. To get the most out of your savings account, follow these handy tips:

  • Look for an online savings account that offers a high interest rate by comparing online. Look out for the terms and conditions because many accounts have bonus rates on condition of deposits and withdrawals.
  • Work out a budget so you know how much you can deposit into your account each month. Obviously the more money you deposit the more interest you will earn and the more savings you will accumulate.
  • Setup an automatic transfer from your everyday transaction account to occur each month. You will hardly notice the money leaving your account and next time you look at you balance on your online savings account you will be pleasantly surprised!
  • Take note of when the bonus period ends and make sure you compare online because it’s worth switching for a better rate.

 

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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 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 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.

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 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 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.

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 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 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. 

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 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.