Key takeaways
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By meeting certain conditions every month, you could have access to much higher rates and earn bonus interest
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Many banks offer their best savings rates to customers who open two accounts with them—one for savings and one for everyday transactions
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Savings accounts are a low-risk investment and are protected (subject to certain limits) by the Australian Government’s financial claims scheme.
With the cash rate being lifted multiple times this year, it’s no wonder more people are choosing to invest their money in a high interest savings account.
Undoubtedly this is one of the best tools available for savers to manage their money’s spending power in a lower risk environment.
In this article we look at how you can make sure that you’re set up to earn the highest interest rate possible and some of the things to look out for.
Get the highest interest on your savings
There are certain things you can do to really maximise the benefits of a high interest savings account.
1. Look for bonus offers
By meeting certain conditions every month, you could have access to much higher rates and earn bonus interest.
These conditions may include depositing a minimum amount each month, making a minimum number of transactions, or not making any withdrawals.
It’s important to be aware that for some of these accounts, if you fail to meet the bonus interest conditions, you will receive little or no base interest. So, check with your bank to confirm what conditions may apply.
2. Introductory rates
Some savings accounts offer higher interest rates for an introductory period of around 3 to 6 months, before reverting to a lower ongoing rate.
While these rates may appear attractive, it’s important to remember these are short-term so always check what the rates will be after this introductory period ends.
3. Help your savings grow
The more you have stashed away, the more interest you’ll earn on your money. Adding to your account on a regular basis can help boost your interest earnings.
4. Bundle your accounts
Many banks offer their best savings rates to customers who open two accounts with them—one for savings and one for everyday transactions.
While this may be of benefit to you, make sure you’re getting a competitive deal for both accounts.
Power of compound interest
Once you have your money invested in a high interest savings account, you’ll be able to start earning compound interest.
Compound interest enables you to earn interest on the money you have saved. But in addition to this interest, you’ll also earn interest on the interest you’ve already earned.
Metaphorically speaking, it’s like planting a tree. When that tree grows, it produces seeds that allows you to plant other trees. Those trees will also grow and produce seeds of their own. So with enough time, you could turn one tree into an entire forest.
Case study example
David invests $10,000 into a savings account and earns 5% interest compounded annually.
In the first year, his interest earnings are $500 (5% x $10,000). However, in the second year, his interest is calculated based on the original amount he invested, plus the interest he earned in the first year—$10,500. In total, over 3 years, he would have earned $1,576.25 in interest.
Conditions of high interest savings accounts
High interest accounts usually require you to meet one or several of these conditions to receive the maximum interest rate. It’s worthwhile checking with your financial institution on what their conditions are before making any decisions:
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Open an everyday bank account with the same bank and link your high interest savings account to it
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Deposit a set amount of money each month
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Grow your balance each month
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Limit your withdrawals or make no withdrawals at all.
Things to look out for
When considering if you should open a high interest savings account, here are some factors to keep in mind:
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Fees: check the fees—banks may charge a monthly fee for not maintaining a minimum balance
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Access: online banks may offer the highest rates on savings accounts but make sure they’re accessible enough for you—it’s not like accessing money via an ATM. If you regularly want to deposit cash into your account, be sure there’s a way to do that with your online bank before signing up
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Long term savings goal: you may be better off using other options, as opposed to a savings account, for long-term savings goals. You may be able to achieve higher returns by investing.
How secure are your savings?
Savings accounts are a low-risk investment and are protected (subject to certain limits) by the Australian Government’s financial claims scheme.
In Australia, the government guarantees deposits of up to $250,000. This means it will reimburse that amount to you should something happen to your bank, credit union or building society. This guarantee applies per person and per institution.
If you’ve saved up more than $250,000, you’d need to keep smaller amounts of up to $250,000 with different banks in order for all your funds to be covered by the guarantee.
Difference between high interest savings accounts and term deposits
Term deposits offer more stability than a high interest savings account as your rate of return is fixed. They do however, come with less flexibility—you can be charged for withdrawing money early or making extra deposits.
Seek help from a professional
If you value the experience of experts in other aspects of your life, don’t discount it when it comes to managing your life savings.
Contact us if would like any more information on the above.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at January 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.
