Want to save $9000+ in three years?

Want to save $9000+ in three years?

Options to invest your money seem to transform with each decade, as RateCity takes a peep into the world of Cash Management Trust accounts and looks at some of the best savings choices.

November 18, 2010

In 1980, Cash Management Trust Accounts (CMT) were born because of the insufficient amount of deposit accounts with high interest rates. Hill Samuel Australia – now known as Macquarie Bank – pioneered the savings accounts to better manage cash flows and enhance returns.

CMTs are basically a combination of a term deposit and an everyday transaction account. A minimum opening deposit is commonly a prerequisite but there are no set terms allowing you access to your funds whenever you choose.

Very popular during the 1980s and 1990s, CMTs still exist and are used by many Australians today. But it may be time these traditionalists compared their rates for the new alternatives which could earn you a lot more investment return.

CMT accounts V online savings accounts
Since the introduction of the Internet there are now some fantastic online savings accounts offering a more competitive interest rate than the old-fashioned CMT. For example you can earn up to 1.76 percent more with an online savings account per annum based on RateCity’s current top CMT account offering 4.75 percent from Macquarie Bank, while the highest online savings accounts at RateCity are at 6.51 percent from UBank.

If you were to invest $5000 (the minimum required for the Macquarie Bank CMT account) and deposit an additional $200 per month over three years, by the end of the three years you would have earned about $1288. But the online savings accounts at 6.5 percent could earn you almost $519 more in interest.

The differences
Apart from their higher interest rates, there are some other key differences between both accounts which you need to be aware of:

  • CMT accounts usually require an initial investment to open the account whereas no or a very low minimum deposit is typically required for an online savings account. Your money is available any time for both accounts though there could be a few days delay, however a CMT may have limitations on transactions such as cheque and credit card facilities.
  • An online saving account interest rate is generally variable which means it can fluctuate so accounts holders will benefit as interest rates rise but similarly affected when they decline.
  • CMT accounts may incur a management fee and ongoing fees and online savings accounts are usually fee free, so make sure you check the account details for a list of their fees and charges.

If you currently have funds tied up in a CMT or know someone who does, then it may be time to consider earning a higher interest rate with an online account to reach your savings goal sooner.


Related Links

Did you find this helpful? Why not share this article?



Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy


Learn more about savings accounts

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.

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 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 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 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.

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 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 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 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 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

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 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.