Earning interest on your savings is just like getting something for nothing. In fact, it's exactly like getting something for nothing.
This is because using a high interest savings account and depositing your savings is so easy when you open an online account, you'll really feel like you're doing nothing while your savings are growing.
Accounts today earn interest in many different ways. Some will earn an ongoing interest rate irrespective of the amount you deposit or withdraw each month, while others will give you bonus interest rates for making regular deposits and no withdrawals. Other accounts will grant you a limited time bonus rate of interest as a sign up incentive.
How to find a savings account which earns interest
Not all savings accounts will earn you interest. Just because an account has 'savings' in the name, doesn't make it a high interest savings account. Therefore, you need to choose an account which has been specifically designed to be interest bearing , that is, one which will earn you interest on your savings.
To find the best interest bearing savings account there are a few things to keep in mind:
- Compare high interest online savings accounts. These are the accounts which will earn you interest, as opposed to everyday transaction accounts which simply allow you access to your funds at an ATM or by using EFTPOS.
- Choose an account which will reward you with interest and bonus interest for the way you save. With some high interest savings accounts, you're able to earn even more interest if you meet the bonus criteria. Depending on the bank and the savings account you may earn more interest for making regular deposits, for making deposits to a certain value, or when you don't make withdrawals from your account. If you think you can follow any of these simple savings plans then you can choose a high interest savings account which offers you even higher interest earning capabilities.
- Choose a savings account which aligns with your savings goal amount and deadline. The type of goal you are saving for can affect the high interest savings account you choose because some accounts will require a minimum balance for you to earn interest, and others will require notice before you can withdraw funds. Think about your goal and what you want to do with your savings before opening an account.
Comparison of interest bearing savings accounts
How can you ensure your interest earning is at a maximum?
To make sure you are earning the maximum interest on your account, you need to know about some of the instances where your account may be non-interest bearing, depending on the account you choose.
Here are some instances where your savings might not be reaching their full potential:
- When you make a withdrawal. To encourage you to only make deposits into your savings account and leave your savings alone until they've reached their goal amount, some banks will give you a lower interest rate on your balance in the months you make a withdrawal. Often this applies to your balance for the entire month, regardless of when you make the withdrawal.
- You don't meet the deposit requirements. This is another incentive by the bank to encourage you to regularly save and if you are able to set up a regular transfer of the required amount each month, you can earn a higher interest rate on your account. If this is similar to your account ensure you always make the minimum deposit.
- Your balance exceeds the limit. Many accounts will reduce the interest you earn when your balance goes over a certain amount. In these cases it's a good idea to contact your institution to see if they can work out a better rate for your more substantial savings amounts, or consider splitting your funds into separate accounts at different institutions.
- The introductory bonus period is over. Some accounts will only give a competitive bonus rate to encourage you to sign up. Once the offer is over you'll earn a lower standard rate, which might signal a time to move to a new account.
Interest rates on savings accounts are fluid because you are enjoying both the flexibility of an online savings account coupled with the ability for the interest rates to rise as the Reserve Bank of Australia increases the official cash rate. However, by comparing the ways banks calculate and pay interest rates on your savings account, you can ensure you are earning the maximum rate, no matter what.