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Learn more about savings accounts

Unlike your everyday transaction account, your savings account is the money you set aside for a particular savings goal or an overall savings plan. A savings account could be used for both a short-term savings goal – like buying a gadget or accessory – or a major purchase – like a car or a house.

A savings account would also suit people who are simply setting aside money for emergency purposes, a more long-term savings plan or a major investment.

By keeping the money in a separate account from your everyday transaction account, you will not be as tempted to spend it on day-to-day expenses. It also becomes easier to monitor your progress and how you can save more in a shorter period of time.

Savings accounts are usually accessed by going onto the bank’s app or online banking system and transferring the money into your everyday transaction account. Other savings accounts, however, have minimum deposit requirements or withdrawal restrictions.  

Different types of savings accounts

Know what your savings plan is first and when you ideally want to reach your savings goal.

If it’s a long-term savings plan, it might be good to make a monthly budget plan and consider which savings account would be best for it. Would you want withdrawal restrictions? Would you want a savings account that requires you to make regular contributions? Or would you prioritise a savings account with the highest interest rate?

In order to answer all of that, here are the options you can consider:

Online savings accounts

Getting an online savings account will allow you to access your savings account from anywhere, at any time, as long as you have your mobile phone and the banking app. Online savings accounts usually have higher interest rates, little to no fees, and best of all, it saves you the trouble of personally going to a bank and waiting on the long queues.

Bonus saver accounts

Some savings accounts will even give their customers bonus interest rates if they meet certain conditions specified. It could mean that you would have to meet a minimum monthly deposit or by imposing a withdrawal limit per month. This is ideal for those who want to keep their savings goals on track and for those who want to become better in saving up. Even better, you will be rewarded for your efforts in saving.

Introductory rate savings account

An introductory rate savings account offers an incentive many would be willing to sign up for, which is the introductory bonus rates. These bonus rates usually last for about four to six months upon signing up for the savings account. This appeals to people looking to switch savings accounts – and the introductory bonus rates offered rewards them for the switch.

After the specified time period has expired, the savings account will return to the standard interest rate. This might be a good option for those with only a short-term savings goal or for those who simply want to have an account with a high interest rate (even if it’s only short-term).

High-interest savings account

There are many competitive rates among various high-interest savings accounts in the market. The best part is that most of them don’t have account-servicing fees. That means you’ll get a higher return on the money you deposit into this account and you can meet your savings goals faster.

Minimum-deposit savings account

A minimum-deposit savings account forces you to make a monthly deposit in order to be awarded its high interest rates. The good news is that this gives you an incentive to consistently contribute, which will in turn boost your savings in the long run. Just make sure you do make these regular payments because penalties and fees usually apply if you fail to do so. Minimum deposit savings accounts generally don’t allow you to make withdrawals, either.

Kids savings account

It might be good for you to introduce your children to a savings account, and there are savings accounts specifically for children under 18 years old. A kids savings account is generally like a standard savings account with monthly interest. The interest rates vary per bank but are usually competitive. Bonus interests are generally offered, as well. The best part? Fees and charges are usually waived.

Take note, however, that monthly deposits are usually required and that there are also withdrawal restrictions you need to be made aware of.

Where to find and compare different savings accounts in Australia

Here’s another piece of good news: by using RateCity’s online comparison tool (above), you can quickly and easily research and compare hundreds of different savings accounts throughout Australia.

Having so much choice can seem overwhelming. But by comparing savings accounts online you can narrow your search to include only the options that best suit your needs, which makes selecting a savings account so much simpler.

When you compare savings accounts in Australia using the RateCity comparison tool, all you have to do is enter your deposit amount, savings term and account type.

To narrow your search, you can choose certain criteria to help you find a specific savings account in Australia. For instance, if you insist on having BPAY access, you can filter out all those lenders that don’t offer BPAY access. Or if you’d prefer to view results on savings accounts with ATM access or branch access, it’s possible to drill down your search in this way too.

The difference between a base rate and a maximum rate

Once you’ve done your research, the next step is to decide how to view your search results. You can either group the results based on the base interest rate (either highest to lowest or lowest to highest) or the maximum interest rate (highest to lowest or vice versa).

Some people are surprised to discover that there are two different types of interest rate, and are unsure what the differences are and why these differences exist.

The base interest rate is the minimum interest rate you will be paid; the maximum interest rate is how much you can earn if you meet certain conditions.

These conditions might include:

  • Minimum balance – you have to keep a certain amount of money in your account
  • Minimum deposit – you have to add a certain amount of money to your account each month
  • Maximum withdrawals – you can make only so many withdrawals per month
  • Linked products – you have to use another of the lender’s products, such as a transaction account or credit card

As a general rule, you’ll earn the maximum interest rate in those months where you meet all the conditions – otherwise, you’ll be paid the base rate.

Of course, conditions vary from lender to lender.

Why, though, do lenders have two different types of interest rate? Lenders sometimes argue that it’s to encourage good behaviour, such as saving more and spending less. Cynics sometimes argue that it gives lenders a chance to advertise higher interest rates but to pay lower interest rates.

Whatever the reason, don’t sign up for a savings account unless you understand how much interest you’ll be paid and what conditions apply.

Frequently asked questions

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.

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 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 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. 

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.

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.

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.

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 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.

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)

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.