Key takeaways
- By meeting certain conditions every month, you could have access to higher interest rates
- Many banks offer their best savings rates to customers who open two accounts with them—one for savings and one for everyday transactions
- 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 higher than it’s been in many years, you may be looking to invest your money in a high interest savings account.
In this article we address 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 interest rates and potentially 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 bonus 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 three to six 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:
- Open an everyday bank account with the same bank and link your high interest savings account to it
- Deposit a set amount of money each month
- Grow your balance each month
- 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:
- Fees: check the fees—banks may charge a monthly fee for not maintaining a minimum balance
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 want to regularly deposit cash into your account, be sure there’s a way to do that with your online bank before signing up- Long-term savings goal: you may be better off using other options as opposed to a savings account for long-term savings goals. For example, investing may offer you higher returns depending on your situation.
How secure are your savings in a high interest account?
Savings accounts are a low-risk investment as they are protected (subject to certain limits) by the Australian Government’s financial claims scheme.
In Australia, the Federal 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 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.
Frequently Asked Questions
What are the primary benefits of a high interest savings account compared to other savings accounts?
The primary benefits include higher interest rates, which means more earnings on your savings. Additionally, these accounts often come with the same accessibility and security features as regular savings accounts.
Are there any requirements to open a high interest savings account?
Requirements vary by financial institution, but generally, you’ll need to provide personal information, such as your name and address. Some accounts may have minimum deposit requirements too.
Are there potential downsides to high interest savings accounts?
While they offer higher interest rates, the rates can still fluctuate and may be influenced by economic conditions. Additionally, some accounts may have withdrawal restrictions or fees, so it’s essential to read the terms and conditions carefully.
The information in this article is current as at June 2024 and may be subject to change. The information in this article is factual in nature only and does not and is not intended to imply any recommendation or opinion about a financial product. You should obtain appropriate advice before making any decisions based on the information in this article.
The Financial Coaches provide financial advice under the Australian Financial Services licence (AFSL) of Actuate Alliance Services Pty Ltd ABN 40 083 233 925 AFSL 240 959 (Actuate). NULIS Nominees (Australia) Limited ABN 80 008 515 633, AFSL 236465 (NULIS) is the trustee of MLC Super Fund ABN 70 732 426 024 (Fund). Actuate and NULIS are both companies within Insignia Financial Group which comprises Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group). No other entity within Insignia Financial Group, including NULIS or any other entity within the Insignia Financial Group that is a trustee for a regulated superannuation fund, is liable for or responsible for any work, action or advice provided by Actuate.
