Be honest, are you getting the interest rate that you deserve?
High Interest Savings Accounts Tips
Fred Schebesta, co-founder at finder.com.au
What are the types of high interest savings accounts?
- Online saving accounts.
With the rapid growth in technology and online usage internet savings accounts have become extremely popular. One, they are simple and easy to open online and secondly having online access means consumers can shop round for the best rates. Internet savings accounts have very limited transactions available, so if you want to use BPAY, or make withdrawals, you would have to transfer funds across to your linked transaction account.
- Term deposits.
These types of accounts have been around for a long time, and are fairly straightforward. You invest your money for a predetermined time at a given rate of interest and there it is supposed to stay until maturity. If you need to break the term you usually are charged penalty fees for doing so. The downside of this sort of investment is that you don't have any liquidity your money is locked away for the term. Admittedly if interest rates drop you gain because your interest level is fixed, but the reverse applies too, if interest rates rise you lose out. Term deposits can be taken out with banks, credit unions and other financial institutions. Interest varies but rates can be found that are similar to Internet savings accounts. The appeal to many people is the certainty, because the rates are fixed for the agreed term. Terms range from 1 month to a number of years. The fixed interest is paid into your account either monthly, quarterly or on maturity. Rates can vary dependent on how often the interest is paid, the size of your deposit, and whether the interest is compounded. If you decide to roll over or reinvest your deposit when it reaches maturity, you need to check the rate, as these can change and revert to a lower rate in some cases. Always make sure you read the product disclosure statement for your investment. Before taking out any term deposit confirm that the financial institution you select is an Authorised Deposit Taking Institution (ADI).
- Cash management accounts.
Some consumers prefer a dual account which has the capability to handle both transactions and savings. Now whilst these might be convenient because everything is all in the one place, to gain any benefit from a higher interest rate you need to have a few thousand dollars sitting in the account. Quite often you will see promotions stating no fees charged on these type of accounts, which is a form of saving; but reading the terms and conditions generally indicates that the no fee rule usually needs a substantial amount (around $5000) to open the account, or a reasonable size amount deposited each month. Dependent on your type of account or your balance some of the transaction or account keeping fees can be waived; whilst other accounts allow for a certain amount of free transactions per month before charging a fee. To gain the benefit of a high interest return you generally need to keep your balance above a few thousand dollars.
- Traditional saving accounts.
These have some appeal because of the occasional bonus rates and their liquidity, but that is being outweighed now by their lack of return on savings. In most cases the standard interest rates on these type of accounts are fairly low; and frequently fall short of the better term deposits, Internet savings accounts and cash management accounts even when bonuses are added. Plus there can be conditions to receiving the bonuses such as making regular monthly deposits or not making any withdrawals.
How to compare high interest savings accounts
- Limited access.
The purpose of having a high interest saving accounts is to separate your savings from your day-to-day spending money. Most high interest savings accounts therefore allow limited access to your savings through a very narrow range of transactions, and don't provide for transactions such as cheque payments, eftpos, debit cards and ATM withdrawals that are a feature of transaction accounts. With this in mind, you should look at bank fees on an account, and banking contact arrangements.
- Online saving.
If you are happy to do all your banking electronically you might choose an online savings account, but if you don't have easy internet access your choice is more limited. If you will be a low-maintenance customer, saving the bank overheads because you do all your banking online, you should be looking at savings accounts with low (or no) account fees.
- Opening another account.
Banks usually require high interest savings accounts to be linked to transaction accounts, so if you already have a transaction account, check whether a high interest savings account could be linked to your existing account, because not all banks allow their savings accounts to be linked with transaction accounts of other banks.
- The types of interest rates.
When comparing high interest savings accounts it's important to differentiate between the standard variable interest rate offered and any bonus interest offered for an introductory period. An introductory bonus offer can boost your savings impressively if you're saving for a short-term project and you will have reached your savings goal before the introductory offer expires; if a bonus offer expires long before you are likely to have reached your savings goal you also need to be comparing the standard rates of interest offered on different accounts.
While interest rates are very relevant criteria when choosing a savings account, the other features of the account are also important: if an account has a slightly higher interest rate but lacks a feature that you consider essential, you will need to balance the higher yield against the more favourable account feature for instance, could be comparing a fee-free account with an account that offers higher interest but charges account fees.
How to apply for a high interest savings account
If you would like to apply for a high interest savings account that is featured on finder.com.au, please click on 'go to site' to be safely redirected to the application page. The application process should take around 10-15 minutes to complete, and you'll generally get an instant online response.
In some cases you'll need to link your HISA with your everyday transaction account. Any funds to and from your HISA will need to go through your transaction account.
- BSB and account number of an existing Australia transaction account, held in your name.
- In some cases, you may need to open a transaction account with the same financial institution to be eligible for their HISA
- Driver's Licence, Medicare Number, Passport, Australian Birth Certificate.
- Your Tax File Number if you want to avoid paying withholding tax.
- You'll need to be 18 years old, or older. Please note that there are some exceptions and in some cases the minimum age goes down to 12 years old.
- Your Tax File Number if you want to avoid paying withholding tax.
- You have a residential address in Australia.
- You are an Australian resident for tax purposes.
Here are some of the different types of account you can apply for on finder.com.au:
- Account on behalf of another
- DIY Super
Frequently asked questions
Should I switch savings accounts?
In today's economy it is sensible to try and have some money put aside for that rainy day, holiday, or emergency; there is nothing worse than knowing you have no fallback position should something unexpected happen. It is in your own interests to find an account that suits your planned savings pattern and will give you the best return on your investment. Making regular savings, whether fortnightly or monthly, can only improve your financial position and it is simple these days to organise or set up direct deposits from your salary into your savings. You will be surprised at how quickly your savings can mount up when you have them in the right account, and they are working for you instead of the bank.
What are the common features of a HISA?
- No minimum amount required to open account
- Deposit or withdraw any amounts you choose
- Interest is calculated on a daily basis and added to your account each month
- No fees for account keeping
- No charge for direct debits and credit when available
- Not available at all facilities
Can you tell me more about the optimum savings model?
Opening the highest interest savings accounts may help increase the interest that you are earning. There are usually no fees when opening an account and no fees for transaction between your everyday transaction account and your high interest account. Although high interest savings accounts are all designed to encourage you save rather than spend money, there is a degree of variation in the ways different savings accounts help you to achieve this objective. When comparing high interest savings accounts, two of the most important features to be examined are customer service provision and, of course, interest rates.