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Learn more about savings accounts

Whether you’re daydreaming of a holiday, buying a house or planning a wedding, saving money can be an adventure of its own. 

However, there are easier ways to get more bang for your buck than investing in Bitcoin. If you want to make money on top of your rainy-day fund, it’s time to look at putting your money in a savings account. 

Your money is safe and sound 

Savings accounts are, as the name implies, a type of bank account that helps you to save money by providing the best interest rates for you. It is one of the easiest and safest ways to grow your savings, compared to investing in stocks or property.

This is due to the secure nature of depositing your savings with a bank or lender, which are protected through the Financial Claims Scheme (FCS).  

Financial Claims Scheme

The FCS is an Australian Government scheme that protects you (the customer) in the unlikely chance you suffer a loss from the failure of your lender, up to $250,000 per account-holder. 

This means your money is a lot more protected than storing it under your mattress, or gambling it with a high-risk investment. 

What should you look for in a savings account? 

There are several things to consider when choosing a savings account, such as annual fees or linked accounts; but the most significant feature is the interest rate.  

Here are a couple different types of interest rates to look for when choosing your savings account: 

  1. Best interest rates 

The key to choosing a competitive savings account is to look at the interest rate. As savings accounts pay compound interest on the balance, it is wise to do your research and look for an account with a higher than average interest rate. 

Using an interest rate comparison tool is a quick and easy way for you to find what you consider to be the best interest rates available.

  1. Bonus interest rates 

To help you in your savings journey, lenders may offer a bonus interest rate on top of your base rate. These can usually be earned under a variety of conditions, such as meeting a minimum deposit each month or adhering to a minimum number of withdrawals. Bonus interest rates often have restrictions, so it’s a good idea to read the terms and conditions associated with them. 

  1. Promotional interest rates 

This type of interest rate is typically offered as a one off to new customers. This is different to a bonus interest rate, in that a promotional interest rate is available for a limited period and they don’t normally come with restrictions. 

What is a good interest rate for a savings account? 

Much like choosing a home loan, what you determine to be the best interest rates available is a personal decision.

However, it’s wise to look for an interest rate that is higher than the current Consumer Price Inflation (CPI) rate. The CPI rate is frequently changing, so you can keep track of it on the Reserve Bank of Australia’s website.

Frequently asked questions

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.

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.

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.

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 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 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. 

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.

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 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 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 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 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