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What's new in savings accounts in December 2021?

The cash rate has been kept on hold yet again by the Reserve Bank of Australia (RBA) at its November meeting, so Australians hoping to gain a savings interest rate rise are yet again waiting for a greater return on their nest eggs.

The RBA does not expect the cash rate to rise until key inflation targets are met by 2024, However, many experts are tipping savings account holders may not be waiting too much longer for a rate rise, with CommBank tipping an increase as early as 2022.

In the meantime, more banks are continuing to slash savings account rates out of cycle with the RBA. Big four bank, Westpac, reduced its popular savings account by 0.05%, however left its popular, market-leading young adult account at 2.50%.

If you’re considering shopping around for a more competitive savings account deal while you wait for rates to rise again, here are some of the savings accounts with the highest interest rates on RateCity at the time of writing (excluding kids savings accounts):

Updated by Alex Ritchie on December 3, 2021

What is a savings account?

Whether you’re planning for a holiday or saving for a house deposit, savings accounts are simple, low risk way to boost your nest egg. Learn how to choose the right account for your needs and what interest rate too look for.

A savings account is a type of bank account where you deposit your money so it can earn interest. Generally, interest is calculated daily and paid monthly. The rate of interest is influenced by the Reserve Bank of Australia’s cash rate.

What are the different types of savings accounts?

The different types of savings accounts include: 

  • Introductory savings accounts

Banks will offer bonus interest for the first few months of the loan. The interest rate will then revert to a lower standard rate after a number of months, typically 3-6 months.

  • Conditional savings accounts

This is a savings account where to earn the highest interest rate, you must meet the bank’s conditions, such as:

    • Depositing a certain amount of money into the account each month;
    • Making minimal withdrawals (or no withdrawals) from your savings account each month;
    • Keeping the balance of your savings account above a certain amount; or
    • Using another of the lender’s products, such as a credit card.

If you don’t meet the conditions, you’ll be reverted to a much lower (sometimes 0 per cent) interest rate for that month. 

  • Online savings accounts

These are savings accounts that are based entirely online and usually accessed just via an app or online banking. Online savings accounts avoid costly overheads by cutting out branches altogether. This makes for an account with a typically higher rate and less fees than a traditional bank’s savings account. If you’re the kind of person who relies on branches and face-to-face banking, this type of account may not suit. 

  • Children's savings accounts

Children’s savings accounts can help teach your child basic financial literacy in a digital age. Kids can gain an understanding of the banking system and learn how to save money, especially when paired with educational savings apps. Compared to adult accounts, children’s savings accounts generally have higher interest rates, but can come with higher fees. 

  • Retirement savings accounts

Retirement savings accounts are targeted towards Australians over the age of 55 and pensioners. Interest rates are typically higher when you deposit larger amounts. Before compulsory superannuation, retirement savings accounts were a popular way working Australians could save for their retirement. While they are becoming more rare, there are still several accounts on the market. Retirement savings accounts are also afforded the same regulations and tax benefits as superannuation. 

Popular savings accounts

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How does compound interest work?

Savings accounts use compound interest to help you reach your savings goals. Compound interest on high interest savings accounts is calculated daily and paid monthly.

Compound interest can help accelerate your savings because you earn interest on the money you initially deposit, as well as the interest you’ve already earned. In essence, you’re earning interest on interest.

Also, making additional deposits can seriously transform your savings thanks to compound interest. For example, if you deposit $1,000 into a savings account earning 2 per cent interest over five years, your deposit would grow to $1,105. If you also made monthly deposits of $200, your deposit would grow to $13,715 thanks to compound interest. 

YearBalance total
1$3,442
2$5,934
3$8,476
4$11,069
5$13,715

What to look for in a savings account

Here are a few things to consider when shopping around for a savings account:

Interest ratesThe biggest deciding factor for a savings account is it’s interest rate. The higher the rate the bigger boost your savings will get.
Fees and costsA high interest rate doesn’t mean a lot if the savings account charges high fees. These can include ongoing admin fees, ATM fees, eftpos fees and electronic transfer fees.
Account typeOnline, introductory, conditional, children’s or retirement accounts.
Linked accountsOften a savings account will need to be linked to a regular bank account to ease the transferring of funds or meet certain conditions. Before you apply, ensure the bank account will also suit your financial needs and compare any fees or hidden costs.
Spending habitsIf you’re the type of person to dip into your savings, consider looking for an account that doesn’t reduce your interest rate for doing so. This requires looking over the savings accounts conditions before applying.

What other low risk savings options are there?

The major benefit of a savings account is the low risk. You’re not investing anything, and your money can just sit and earn interest. It’s safer than hiding it under your mattress.

The other low-risk option to park your savings in is a term deposit. They are similar to savings accounts, however after you’ve deposited your money you cannot reclaim the funds until the end of a fixed term.

Term deposits are a competitive option for those who are prone to dipping into their savings. Term deposits allow you to lock away your money at a fixed rate, and charge you high fees for withdrawing it early.

Tip

Both savings accounts and term deposits are protected under the Financial Claims Scheme. The federal government will guarantee up to $250,000 for each account holder at each licenced bank, building society or credit union incorporated in Australia.

How do you get the best interest rate?

The easiest way to choose a competitive savings account rate is to: 

  • Keep your rate above inflation

A general rule of thumb is to choose a savings account rate higher than inflation levels. You can visit the RBA’s website to see current levels. This is simply because if your savings don’t grow at or above the rate of inflation, or your money will devalue. 

For example, a savings account with $100 in it at a savings rate of 1 per cent may grow to $101 in a year. But if inflation was 2 per cent, you’d need to have $102 for your original deposit to be worth the same amount.  

  • Use comparison tables

Comparison tables allow you to compare apples to apples. Depending on the savings account type, you can filter down and view a range of accounts maximum interest rates. You can also compare how much interest you may earn on your original deposit. This can help you to choose the right savings account for your savings goals.

Keep in mind that there is more to a savings account than interest rates. If the account has high fees it may end up costing you more than expected. Further, if the high interest rate on your account comes with conditions, try to be prepared to meet them or you will miss out. 

How interest rates are determined

Savings account interest rates are determined by the provider and influenced by the Reserve Bank of Australia (RBA) cash rate

Every first Tuesday of the month (besides January), the RBA meets to decide whether the cash rate should be increased, decreased or hold. This impacts millions of Australians and can alter interest rates for deposit accounts as well as home loans. 

If the cash rate were to be cut, for example, savings account providers would be expected to cut interest rates too. Vice versa for increasing the cash rate. When the cash rate is cut it can mean bad news for those relying on or living off of savings, such as retirees. In turn, it is generally good news for mortgage holders as their repayments may be reduced. The RBA takes all of this into consideration when determining whether to change the cash rate. 

Learn how much interest you could accumulate

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What are savings accounts traps?

Just because savings accounts are considered low risk, doesn’t mean there aren’t common mistakes you can make.

  • Falling for introductory rates

Some people are shocked when they sign up for a savings account and find themselves earning less interest than was advertised. As mentioned above, some savings accounts can offer higher introductory rates for a few months to attract new customers. These can then revert to much lower ongoing rates. If you’re not careful, this low rate may be buried in the fine print. Do your research before applying for any savings account. 

  • Not meeting conditions

If you’re not meeting the requirements of your conditional savings account then you’re missing out on some serious savings. In some instances the base rate of the savings account may be zero or just above it. Making this mistake time after time could cost you years towards your savings goals.

  • Big savings but little risk

Ironically, another way some people misuse savings accounts is to store too much money there. Savings accounts often deliver lower returns than other investments. Once your balance reaches a certain amount, it might be worth considering whether you should withdraw some of the money and invest it elsewhere. Just make sure you understand the higher level of risk associated with your new investment.

  • High fees

Some savings accounts can charge higher than average fees. Childrens accounts, for example, are known for charging high interest but high fees to compensate. Use comparison tables and savings calculators before you apply for any savings account to make sure you aren’t taking steps backwards in your savings journey due to costly fees.   

Can you have a joint savings account?

Many lenders offer joint savings accounts, which give two or more people access to the one account. 

You can open a savings account online in just a few minutes, or you can do so in a branch. You’ll need to provide both parties identification and contact details, as well as your tax file numbers if you don’t want to be taxed at the maximum rate. Just fill in the application and submit it to the savings account provider of your choice. 

Joint accounts are most commonly used by people in a romantic relationship, although they can also be used by friends or relatives who want to pool their savings. It’s important not to open a joint savings account with somebody unless you trust them. Keep in mind they will be able to withdraw any money you deposit in the account.

Savings accounts from across Australia

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 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.

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 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. 

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.