Savings accounts are such a straightforward product that people sometimes take them for granted. Sometimes, the assumption is that if you’ve seen one, you’ve seen them all.
The reality, though, is very different. Here are a few ways savings accounts can have different ratings:
- Higher interest rate v lower interest rate
- No monthly fees v monthly fees
- Maximum interest rate guaranteed v subject to conditions
- Branch access v no branch access
- ATM access v no ATM access
- EFTPOS facility v no EFTPOS facility
- Available to under-18s v not available
Another point to bear in mind is that there are dozens of different lenders offering hundreds of different savings accounts.
With so many different products on the market, and with so many different criteria to consider, there can be a big difference in savings account ratings.
What to look for when choosing a savings account
If you’re like most people, the first thing you’ll look at when weighing up savings accounts is the different interest rates being offered.
That’s fine, but it’s important to realise that the interest rate being advertised may not be the interest rate you receive.
“How is that possible?” you may ask.
Well, some lenders offer a short-term bonus rate to new customers – for example, an extra 1.50 percentage points for the first three months. In this hypothetical scenario, you’d earn the advertised interest rate for the first three months, but would then be paid the standard interest rate (which would be 1.50 percentage points lower). So you get baited with one interest rate and then switched to another.
Some lenders use another version of this bait-and-switch tactic. Again, there are two interest rates – the (lower) base rate and the (higher) maximum rate. The maximum rate is the one that gets advertised, but you only earn this rate if you meet certain conditions during each calendar month. Otherwise, you get switched to the base rate.
What are those conditions? They differ from savings account to savings account, but one typical example is that you have to deposit a minimum amount each month – say, $1,000. Another example is that you have to minimise your withdrawals each month – this might be one or even zero. You might also be expected to use a linked product – a transaction account, say, or a credit card.
Most people pay close attention to interest rates when choosing between savings accounts, but a surprising number of people don’t show much interest in fees. That’s a mistake, because fees can be surprisingly high, and can therefore eat up a surprising share of whatever interest you earn.
Some products charge monthly account-keeping fees. Others impose withdrawal fees and minimum balance fees. You might also be charged fees if you bank cheques or request paper statements.
Although interest rates and fees are the two main criteria when it comes to rating savings accounts, features are also important. These can include things like access to branches, ATMs, BPAY and EFTPOS.
How to research savings accounts
If you’re wondering how to research savings accounts, a good place to start is by using RateCity’s online comparison search (above). This will allow you to compare interest rates, fees and features for several hundred different accounts, and rate them accordingly.
You might also want to spend a few minutes playing around with RateCity’s savings accounts calculator. This will show you how much money you can earn under different interest rate, deposit size and deposit length scenarios. It will also provide a helpful graph so you can get a quick snapshot of how much you’d earn under each scenario.