High-interest savings accounts come with strings attached

High-interest savings accounts come with strings attached

Lenders are asking customers to jump through hoops if they want to earn even moderate rates of interest on their savings accounts.

RAMS is leading the way with high-interest savings accounts in Australia, offering a maximum rate of 3.00 per cent for its Saver Account product (see table below).

However, to earn that rate, you have to deposit at least $200 per month, make no withdrawals in that month and keep your balance between $200 and $500,000. Otherwise, you earn the base rate of just 1.35 per cent.

UBank pays a maximum rate of 2.87 per cent for its USaver with Ultra – provided you deposit at least $200 per month and keep your balance under $200,000. Otherwise, the base rate of 1.81 per cent applies.

ME Bank has a savings account with a base rate of 1.30 per cent and a maximum rate of 2.85 per cent.

Teachers Mutual Bank and UniBank both have savings accounts with a base rate of 1.00 per cent and a maximum rate of 2.81 per cent.

Australian Unity offers a base rate of 1.20 per cent and a maximum rate of 2.80 per cent, while ING offers a base rate of 1.00 per cent and a maximum rate of 2.80 per cent.

Queensland Country Credit Union and CUA both have savings accounts with a maximum rate of 2.75 per cent – but Queensland Country’s base rate is 1.75 per cent, while CUA’s is 0.25 per cent.

Lender Product Base rate Max. rate How to get max. rate
RAMS Saver Account 1.35% 3.00% Deposit $200/month; make no withdrawals; keep balance between $200 and $500,000
UBank USaver with Ultra 1.81% 2.87% Deposit $200/month; keep balance under $200,000
ME Bank Online Savings Account 1.30% 2.85% Make one weekly tap-and-go payment with Everyday Transaction Account debit card; keep balance under $250,000
Teachers Mutual Bank Mighty Saver 1.00% 2.81% Deposit $10/month; make no withdrawals
UniBank Mighty Saver 1.00% 2.81% Deposit $10/month; make no withdrawals
Australian Unity Active Saver 1.20% 2.80% Deposit $250/month; make no withdrawals; keep balance under $500,000
ING Savings Maximiser 1.00% 2.80% Deposit $1,000/month; make five monthly payments with Orange Everyday debit card; keep balance under $100,000
Queensland Country Credit Union Star Saver 1.75% 2.75% Keep balance under $5,000
CUA eSaver Boost 0.25% 2.75% Deposit $250/month; make no withdrawals; keep balance under $500,000

The high-interest savings account that pays the highest interest rate isn’t necessarily the best savings account for every individual.

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Learn more about savings accounts

What are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

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

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 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 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.

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 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.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

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.

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 

 

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.

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.

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

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.