If you’re saving towards a new car, your first home or that holiday of a lifetime, a savings account can be a great tool to help you achieve your financial goals.
But before you sign up for any product on the market, it’s worth taking the time to understand the basics. Here’s a helpful guide on savings accounts in Australia.
What is a savings account?
A savings account helps you grow your savings by offering a compound interest rate that is higher than the rate on your everyday transaction account.
Designed to accrue money, a savings account usually does not come with a key card for ATM access. To withdraw money, you need to transfer it across to a linked transaction account.
There are some pros and cons to weigh up before deciding whether a savings account is right for you.
- High interest rates – Savings accounts generally come with competitive interest rates that help you reach your financial goals faster, especially given it’s a compound interest rate on offer. Many lenders also offer bonus rates for an introductory period, or if certain conditions are met.
- Investment protection – Unlike other investments, which come with some risk, a savings account is unlikely to give you a negative return. The government also protects deposits of up to $250,000 in authorised deposit-taking institutions (ADIs). This means that if your lender is an ADI and it goes bankrupt, your money is safe.
- No lock-in period – Savings accounts in Australia typically don’t have a lock-in period, so you can move your money at any point. Some people use this feature to opt in and out of different products – taking advantage of bonus introductory rates on the market, then switching products once the introductory period is over.
- Fluctuating interest rates – Savings account interest rates are variable, which means they fluctuate – and potentially decrease – depending on the cash rate.
- Conditions around bonus interest rates – Although bonus interest rates are appealing, they often come with conditions such as a limited number of withdrawals, a minimum monthly deposit, or getting a linked transaction account with the same lender. Similarly, bonus introductory rates only last for a certain period before the account reverts to a lower base rate. Take the time to check what conditions are attached to any bonus rate on offer.
- Temptation to spend – Most savings accounts allow you to transfer your funds into your transaction account for easy access. While some prefer this flexibility, others may find it a temptation to spend impulsively, rather than save.
Are there alternatives to a savings account?
One alternative to a savings account, which can also come with competitive interest rates, is a term deposit account.
A term deposit invests your money for a certain period – usually between one month to five years – at a fixed rate of interest. It suits savers who want to lock away their money for a period, although the downside is if you want to access your money before the term is over, you may need to pay a penalty.
In many cases, banks and credit unions require a minimum amount to invest your money in a term deposit account.
What should you look for when choosing a savings account?
It’s always worth comparing different savings accounts on the market and what they offer. Key questions to ask include:
- Is the interest rate offered the most competitive on the market? You can use the RateCity website to compare different rates on the market.
- What is the base rate? An advertised introductory rate only lasts for a certain period. Check the base rate to find out how much interest you will earn once the introductory period is over. This also applies to bonus rates that come with special conditions, as the base rate is what you will earn if those conditions aren’t met.
- How accessible is the account? It’s worth finding out if the lender allows you to manage your savings account online, if there is a cheque facility, or if you need to open a transaction account with the same lender to access your money.
- What fees do they charge? Take the time to check what fees come attached to any product you are considering. You can find them on the product’s terms and conditions.
Savings accounts at Bankwest
Bankwest offers a range of savings accounts with different features that can help you reach your financial goals.
Keep in mind that you will need to have certain documents handy when you apply, such as your banking details, identification documents (for example, a driver’s licence or passport) or tax file number. A full list of what you need is available on the Bankwest website.