I’m sure some of you will have a similar experience to me where your parents set up a kiddy/child/youth savings account for you when you were still in school. Back in those days the Internet was still pretty new so most deposits were done with paper and a cashbook. In the internet era of today, online savings accounts have largely replaced most of the older paper-based savings accounts. There are many products on the market and they all come with different restrictions and clauses.
Something that needs to be mentioned is if you have a home loan with an attached offset account. If you do, then that account will usually be the best savings account for you because it will be reducing the interest on your home loan. The interest you save on your home loan will be much higher than any interest you earn on a savings account. This will be delved into more detail with a dedicated home loans post.
Savings accounts are different from term deposits. Term deposits are like savings accounts where your money is ‘locked-away’ with a bank for an agreed amount of time in return for a certain amount of fixed interest. The interest is paid when the term finishes. If you want to withdraw money early from a term deposit, you will have to pay a penalty and you will usually receive no interest at all. Savings accounts allow you to withdraw your money at any time without incurring penalties (though you may lose bonus interest).
The criteria for a perfect savings account are:
Unfortunately there is no perfect savings account product out there. Interest is paid no more frequently than monthly and high interest rates come only upon meeting certain requirements. Interest rates usually (but not always) mirror the Reserve Bank’s cash rate and those movements up and down. Something to be aware is interest earned does get taxed so you’re only effectively getting:
advertised savings interest rate — tax — inflation = interest earned
As you can see, that high interest rate quickly becomes a low and (sometimes) negative amount of interest earned
|Bank Product||Normal Interest Rate (p.a)||Bonus Interest Rate (p.a)||Combined Interest Rate (p.a.)||Conditions|
|RAMS Saver||2.00%||1.60%||3.60%||– Deposit at least $200 per month
– No withdrawals
– Max balance of $500,000
|Bankwest Hero Saver||3.35%||—||3.35%||– Deposit at least $200 per month
– No withdrawals
– Max balance of $250,000
|ING Savings Maximiser||2.25%||1.25%||3.50%||– Must have a linked Orange Everyday transaction account
– Deposit at least $1,000 per month
– Max balance of $100,000
|UBank Usaver||2.31%||1.06%||3.37%||– Must have a linked UBank Ultra transaction account
– Deposit at least $200 per month
– Max balance of $200,000
I haven’t included any products above which only offer a special bonus for a few months after opening the account because after the promotional period the interest rate drops back to quite a low variable rate. The listed accounts are all fee-free and are included in the Australian government’s Financial Claims Scheme. This scheme guarantees your money in the unlikely event that your bank goes bankrupt with your savings in it. Something that should be mentioned is a bank deposit levy that has been proposed by the Australian government. A 0.05% levy on deposits up to $250,000 would be used to raise money for the government to fund the Financial Claims Scheme. As of today (17/05/2015) this proposal hasn’t passed legislation but it is something to keep an eye on.
The RAMS and Bankwest accounts have a strict no withdrawal criterion. Therefore these would only be useful for those who don’t plan on touching their savings. The moment you do, you lose all the high interest. Money has to be deposited via electronic banking because there is no debit card attached.
The ING and UBank accounts are better for customers who plan on dipping into their savings monthly. As long as you deposit at certain amount every month from an external source then the bonus rate will be activated. Both accounts need to be linked to their respective transaction account and you get associated Visa debit cards. You can manage the amount of money in your transaction account at all times so that you can use the keep the majority of your money earning a high interest rate. Money can deposited electronically or via the debit card (via Bank@Post at Australia Post locations).
My personal recommendation is that the RAMS Saver is perfect for those who will save and not touch their money. The high interest rate is higher than most if not all term deposits with the flexibility to access your money anytime you want (and only forfeit bonus interest rather than penalty fees)
ING Savings Maximiser accounts are the best if you tend to access your savings periodically. The interest rate is quite high and the restrictions are not as tight. If you already have the ING Everyday transaction account then you’re all set and won’t need to transfer money between banks regularly