Savings Account Interest Rates for Savings Accounts Comparison

Guide to Finding the Best Savings Account Interest Rate in Australia

Interest rates get quite a bad reputation in the media because everyone tends to focus on the Reserve Bank of Australia’s rate rises and how these will affect mortgage holders. However, what the media forgets is that when the RBA raises interest rates, the banks raise the interest rates on their savings accounts too – not just on their home loans.

Featured High Interest Rate Savings Account

If you are looking for a high interest rate, then RaboDirect is one of the leading products in the market. Enjoy a high ongoing rate plus earn a bonus rate for the first 4 months to boost your savings along.

• Maximum Rate: 5.60%
• Standard Variable Rate: 4.85%
• Bonus Rate: 0.75%
• Monthly Account Fees: $0
• Minimum Balance: $0
• Minimum Deposit: $0

Read the RaboDirect High Interest Savings Account terms and conditions

Savings Account	Account Details	Maximum Variable Rate p.a.	Standard Variable Rate p.a.	Bonus Interest p.a.	Fees	Min Balance/Min Deposit
RaboDirect High Interest Savings Account	Introductory rate, reverting to a high ongoing rate.	5.60%	4.85%	0.75%	$0	$0 / $0
UBank USaver	Enjoy a high interest rate from UBank. Deposit $200 monthly to earn an a bonus interest rate.	5.51%	4.91%	0.60%	$0	$0 / $0
St.George Maxi Saver	Take advantage of a competitive interest rate to kick start your savings plan.	5.70%	4.30%	1.40%	$0	$0 / $0
Bankwest TeleNet Saver	Enjoy a high rate on your savings. Limited time offer.	5.65%	4.25%	1.40%	$0	$0 / $0
Virgin Saver Account	Take advantage of a high ongoing interest rate up to $150,000.	4.75%	4.75%		$0	$0 / $0
Citibank Online Saver	Introductory rate from Citibank with a high ongoing rate.	5.70%	4.25%	1.45%	$0	$0 / $0
HSBC Serious Saver	Enjoy an introductory variable rate. Limited time only!	5.55%	4.25%	1.30%	$0	$0 / $0
ANZ Online Saver	Open an ANZ Online Saver to take advantage of one of this fantastic bonus rate. Limited time only!	5.50%	3.75%	1.75%	$0	$0 / $0
BankSA Maxi Saver	An extremely competitive rate with no fees, no hidden catches, no minimum term or minimum balance.	4.85%	4.85%		$0	$1 / $0
Easy Street Bonus Saver Account	Zero fee and a fantastic bonus rate when you deposit at least $50 a month in to your Bonus Saver Account.	5.61%	0.01%	5.60%	$0	$0 / $0
NAB iSaver	Get your savings off to a flying start with bonus interest on top of a competitive standard rate.	5.00%	3.65%	1.35%	$0	$0 / $0
Easy Street – Easy Savings Account	A high ongoing interest rate with no fixed term, no minimum balance and no fee.	4.60%	4.60%	0%		$0 /

How Interest Rates Are Calculated on High Interest Savings Accounts

The interest rate offered on your high interest savings account is the main determiner of how fast your savings will grow. The higher the interest rate offered, the more interest you will earn on your savings, because your returns at the end of the month are calculated by the percentage of your rate. For example, if your interest rate is 4.00%, your returns will be 4.00% of the balance of your account, and so at the end of the month you will have 4.00% more savings than you had at the beginning.

If you are comparing high interest savings accounts and wondering about the significance of having the interest calculated daily and paid monthly, it basically means you will earn more interest. When interest is calculated daily, it is calculated on compounding interest; your 4.00% interest is calculated on your balance on the first day of the month, on the second day of the month your 4.00% interest is calculated on your balance, plus the 4.00% interest from the previous day, and so on. Therefore, throughout the month you can be earning interest on your interest.

To calculate what the rate on their savings and term deposit accounts will be, most banks will base their rate on the RBA’s cash rate. Some banks will add a certain percentage to the standard rate for a promotional period, or lock in a rate several percentage points higher than the cash rate on a term deposit account.

Current Interest Rates on Savings Accounts

Interest rates are never static and while banks may advertise a fixed rate for a period of time, you should always check for the current interest rates of the day before you choose a high interest savings account.

Find the current interest rates for today here:

• ANZ savings accounts and term deposits.
• BankWest savings accounts and term deposits.
• HSBC savings accounts and term deposits.
• ING savings accounts and term deposits.
• Macquarie Bank savings accounts and term deposits.
• National Australia Bank savings accounts and term deposits.
• Rabobank savings accounts and term deposits.
• St.George Bank savings accounts and term deposits.
• Suncorp Bank Savings Accounts savings accounts and term deposits.
• Westpac savings accounts and term deposits.

How to Compare Interest Rates

When you are comparing interest rates on your savings or term deposit investments, you need to consider more than just the highest rate. Some interest rates will be fixed for a certain term of your investment and will return to a lower variable rate after an introductory period, while other interest rates will be subject to your use of the account.

To compare interest rates:

• Choose the interest rate which suits your savings goal. If a high introductory interest rate expires in four months’ time but you can save for your new TV or summer holiday before then, you can take advantage of the high rate and not worry about the lower standard rate.
• Compare promotional and introductory interest rates. If a savings account has a promotional rate, it is important you compare both this rate, and the account’s standard rate. While an account may have a higher initial rate, if you can find a higher standard rate on another account, you could be better off in the long term.
• Look for flexibility. Interest rates are predicted to keep going up for a while longer, which means that if you are locking in a term deposit account, look for an interest rate which is not likely to be exceeded by those of online savings accounts in the next few months. Or choose a term deposit account which lets you upgrade your interest rate, or withdraw for an early exit to a better investment option.

When you compare all of your savings and investment options right here, you can feel secure in the knowledge you have chosen the best interest rate for your savings. Once you have chosen the right savings product for your needs, you can sign up today by following our secure links.

Savings accounts are among the most basic of financial products. Most people’s first accounts are savings accounts, thanks mostly to their accessibility (little or no maintaining balance, quick processing, easy requirements) and to bank programs that encourage young people to save. And even though most of us eventually move on to more complicated accounts, the good old savings account remains an easy, convenient way to stash your cash for rainy days. All things considered, one can go through life with just a well-managed savings account, and still be fairly stable on the money front.

What makes savings accounts ideal is the fact that they earn interest. Other accounts also earn interest to some degree, but savings accounts are made to do just that, and they do it pretty well. Counting bonuses (such as meeting a milestone balance or a minimum deposit amount per month), a high-interest savings account in Australia can earn upwards of 6% in interest per month, whereas rates above 2% are hard to come by in transaction accounts.

The main difference between transaction and savings accounts lies in the accessibility of your money. Savings accounts aren’t designed for everyday use; most of them require a minimum balance and will offer incentives if you stay above it. This discourages withdrawals—most of them allow a minimum number per month—and encourages savings by offering rewards for meeting targets. A transaction account allows you to access your cash at EFTPOS terminals, debit machines, ATMs, cheques, and often a number of other channels, for a lower cost than a savings account—but also for a lower interest.

How interest builds up

How are banks able to grow your money while you forget about it and go about your business? They do this by lending your money out to other people and charging a higher interest than they pay you. So if your savings account grows at a rate of 4%, the bank may be lending it out to an aspiring homeowner at +5%. The difference is of 1% is how they stay in business. In Australia, the average interest rate of at-call deposits (including savings accounts) is around 4.5%, according to the Reserve Bank of Australia.

Also worth considering in savings accounts is the concept of compound interest, which applies to most high-interest and online savings accounts. This means that the interest rate is applied to both the principal and the earnings, so you basically earn interest on your interest. So the more money you have in the bank, the more interest you earn. In Australian banks, and in most mainstream banks around the world, interest compounds every day and is paid out every month. You can calculate how much you can earn on MoneySmart’s compound interest calculator.

Types of savings accounts

Australia has a particularly diverse range of savings account options, especially compared to transaction accounts. There are six common types:

• Online savings account: As implied, these accounts are based entirely online, but must be linked to transaction accounts with commercial banks. Overhead costs (rent, utilities, etc.) are done away with, so the savings are passed on in the form of higher interest.
• Children’s savings: These usually have to be opened by the child’s parent and have certain age restrictions; for instance, Bankwest offers its children’s accounts to kids aged under 15. The money may be accessed through most channels, such as EFTPOS and ATMs, although cheques aren’t very common. The government allows children to earn up to $420 in interest every year, provided they quote their birth date on the tax forms.
• First home saver account: A state-supported project, this type of account is designed to help people save for a deposit on their first home. The government helps eligible savers by making additional contributions and offering tax deductions.
• Cash management account: This is largely a way for people to invest large lump sums in high-interest vehicles while being able to access it anytime. The bank trades the funds in the money market, where it has the potential to earn more. It usually requires a large initial deposit of about $5,000, and offers rewards (such as waived fees and higher interest) if this initial balance is kept.
• Superannuation/retirement: Basically a hybrid of a super and a savings account, this allows you to invest your super funds into a savings account, where it can potentially earn more. Only a handful of banks offer this option, however; as of June 2011 only eight institutions were listed with the Australian Prudential Regulations Authority.
• Christmas account: This is a short-term savings account that allows you to set aside money over the year to spend during the holiday season. Up until Christmas, you have limited access to your funds, meaning you have to pay if you want to withdraw or use it at a checkout.

Online accounts

Of these types, online savings accounts have one of the highest average interest rates. The main reason, as mentioned above is the lack of overhead costs; an online institution doesn’t have to maintain a brick-and-mortar facility nor pay as many tellers. But also working in their favour is that online-only banks are in stiff competition, which means they are forced to offer the best rates possible.

The main drawback to online savings accounts is that access is limited (often strictly online, as the name implies). In a way, this makes it less comparable to traditional savings accounts than to term deposits, which locks your money in the bank for a given period where it earns above-average interest. According to The Bull, an investing newsletter, the two even tend to go shoulder-to-shoulder in terms of interest rates. If a high rate is all you’re after and you don’t expect to need the funds any time soon, an online savings account may be just as good a choice as a term deposit.

Interest rates in Australia

Savings accounts in Australia earned at an average rate of 4.8% in 2010, according to data from Vanguard Investments. It’s a considerable bump up from 2009, when the average return was 3.5%, which in turn was almost half the 2008 average of 7.6% (which was also a ten-year high). On an even larger scale, today’s savings accounts measure up poorly: for most of the late 70s to the early 90s, the annual average was in the double digits, peaking at 18.4% in 1989.

One would think that these ups and downs are a reflection of economic performance. It’s an important factor, to be sure; after all, in 2009 most economies were on shaky ground following the recession. However, at least in deposit accounts, two factors are more important: competition and the need for deposits . If a bank or credit union is low on funds to lend out, they will encourage deposits by offering higher rates of return than the competition. If they don’t need new deposits that much, they’ll usually match the competition’s lower-rate options, allowing them to minimize their “cost of funds” and therefore offer lower rates on loans.

St.George Bank savings accounts are some of the best in Australia, with its above-average cash rate and introductory rates. New customers get a welcome rate of 6.15% for the first four months on the St.George Maxi Saver Account. The PowerSaver account also earned it plus points, combining a competitive interest rate with full access to funds. They also have Sense, a program that allows you to link a transaction account to a savings account and track your saving and spending online.

Our favourite account right now is the USaver Account from UBank (operating under National Australia Bank) as the best high-interest savings account. Standard rates – not introductory rates – were 6.01% during the one-year period that the test account was opened. Other high-scoring providers are Arab Bank, RaboDirect, ANZ, and ME Bank.

Tax implications of interest

Any interest earned on a savings account in an Australian institution is taxable as income in the country, unless exempted by the ATO. This includes earnings on children’s savings accounts, term deposits, and life insurance bonuses. However, you can claim deductions on expenses tied to earning the income. This can include account-keeping fees from the bank, management fees, or financial consultations. If you do not give your tax file number to your bank, an amount corresponding to the highest tax bracket will be withheld, but you will get a refund for the difference, if any, once you provide the number.

In 2010, the Federal Government announced a tax break allowing Australians to pay tax on only 50% of interest earned from July 2011. The move benefited some 5.7 million people earning less than $80,000 a year. Rules on first home saver accounts were also relaxed, allowing families to access the funds for a mortgage earlier than the four-year period initially imposed, and upping the federal contribution to 17% of the first $5,000 deposited.

Rate chasing

Rate chasing is a practice in which one constantly goes after the highest interest rates, often neglecting other factors in the process. Rate chasers keep an eye on mortgage rates and wait to see if their bank is as quick to pass rate increases on to their depositors. They often do, but tend not to make headlines out of it, according to The Age. A saver who’s after the best savings account interest rates often has to dig up the information on his own.

Is rate chasing good for you? It can go both ways. On the one hand it helps to stay on top of the numbers and do your research, and it can indeed mean a difference of several thousand dollars in the long term. The problem is when you overdo it—you may switch banks so often that there’s no time for any interest to build up, or open so many accounts that the interest on each one doesn’t add up to much.

Remember, interest rates are supposed to work over time. Although compound interest may be paid out each month, it takes time to see the effect of $25 month after month. For a difference of .01%, sometimes you’re better off letting your money grow where it is than having to start over.

Choosing a savings account: beyond interest rates

Interest rates are the most important factor in choosing a savings account, but it’s far from the only one. In fact, looking at rates alone can cost you: Jeremy Ooi, financial analyst for Canstar Cannex, says that some of the highest rates today are accompanied by terms that make it difficult to maximize them. For example, most accounts today offer bonus rates that are paid only when certain goals are met. The advertised rate may actually only apply if you make no withdrawals during the month, keep within a given balance, or deposit a certain amount per month.

It is important with your research and comparison to look past just the interest rate, considering other factors such as how often interest is paid out (weekly, bi-weekly, or monthly) and for how long it will apply. As with credit cards, savings account interest rates may be subject to change as per the fine print. Other factors include:

• Minimum and maximum balances: How much money are you willing to park in the bank, and how much do you expect to add to it?
• Account keeping fees: Does the bank charge a fixed monthly fee, or are they waived if you meet savings goals? Does it eat into your potential interest earnings?
• Rewards and penalties: How much will it cost you to withdraw over your limit? Do you get rewards for not touching your money or depositing regularly?
• Linked accounts: Do you need to have an existing transaction account and link it to a savings one? Do you have to pay to do it?

Finally, make sure your bank or credit union is an Authorised Deposit-Taking Institution (ADI). This ensures that they meet industry standards set by the APRA, which in turn means that your money and the interest you earn on it are protected. You can find a list of these institutions on the APRA website.

Related Posts

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