What's the difference between a savings account and a transaction account?

What's the difference between a savings account and a transaction account?

When it comes to personal banking, it can be hard to keep track of all the different ways you can store your money, and then choose the most competitive option. 

We’ve put together the following overview to help you better understand these two account types and find one that best suits your needs. 

Transaction accounts: 

A transaction account is your traditional, day-to-day bank account for everyday expenses. Customers typically have their salary paid directly into this type of account and use it to pay bills. Your funds are accessed with a debit or credit card, and do not typically incur a fee for ATM withdrawals or electronic transfers of funds. 

What should I look for in a transaction account? 

While it’s up to the customer to decide which account best suits their needs, it’s helpful to consider which features a transaction account offers. Most transaction accounts come features designed to make your everyday transactions smoother, including: 

  • EFTPOS facility
  • ATM access
  • Internet banking
  • Branch access
  • Cheque books
  • BPAY 

However, your lender may charge fees on some or all of these features. There are a range of zero fee options, so use our transaction account comparison tool and filter by account fees. 

Savings accounts: 

A savings account is a type of bank account in which the money you deposit accrues interest. 

Are you daydreaming of a tropical holiday, or budgeting for your wedding? Whatever your savings goals are, a savings account is a safe and simple way to watch your money grow. 

They are different to transaction accounts as they aren’t designed to be used for everyday transactions. This is because they typically carry withdrawal fees and monthly deposit requirements to encourage good savings behaviour. They do not typically come with a debit card as lenders want to discourage you from accessing this money for day-to-day expenses. 

What should I look for in a savings account? 

When choosing a savings account, you’ll want to look for one with some or all the following features: 

  1. Competitive interest rate

Higher than average interest rates will put you well on the way to achieving your savings goals. A good rule of thumb 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. 

  1. Bonus & promotional rates

Some lenders will offer bonus and promotional rates to their customers. Bonus rates are another savings incentive that rewards you with interest on top of your interest rate for following a set of conditions. These include meeting minimum monthly deposits or a set minimum amount of withdrawals. Promotional rates are slightly different in that they are offered as a one off, higher interest rate to new customers and last a limited time, however they do not come with restrictions. 

  1. Zero, or minimal fees

Lenders can charge a range of fees on savings accounts, including annual fees, ATM withdrawal fees and electronic transfer fees. There are many zero fee options available, so there’s no need to eat into your savings by paying them if you choose the most competitive account. 

Hear from an expert

We spoke to Tim Newman, Head of Product at ING, about the differences between a transaction account and a savings account:

What about transaction accounts and savings accounts for children? 

Any type of bank account is a great way to help teach kids financial literacy and give them a head start in life. You can use them as an educational tool to teach kids about income, budgeting, how to plan for a goal and overspending. 

Lenders offer customers’ children a range of transaction and savings accounts, with great savings incentives. One benefit of a kid’s savings account is that they usually have a higher than average interest rate, however be wary of any additional fees that lenders charge to offset this. 

It is important to note that the Australian Taxation Office imposes strict rules around children’s savings accounts to prevent tax evasion by parents putting their money in their children’s’ accounts. Check their website to read these official rules before joining with a lender.

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Learn more about 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 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 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 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.

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 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.

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

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 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.

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.