Make your money work for you

There has never been a better time to shop around for deposit accounts with some great offers outside of the big 4 banks. The supposed “flight to quality” argument is no valid reason for consumers to be lazy, as all eligible authorised deposit taking institutions (ADI’s) are covered by government guarantee deposits up to $1 million.

As Australians increasing prefer doing their making on the internet we have seen a flurry of “online savings accounts” surface. The database lists approximately 60 of these accounts, with a wide range of rates on offer.

Interestingly, 12 out of the 15 top listed accounts are based on a promotional/introductory/conditional rate, which typically reverts to a much lower base rate after a certain period or if you don’t meet the conditions. The Big 4 Banks appear in this list and between them have maximum rates 0.75 to 1.65 per cent above their base rates. The terms or duration of these offers rarely extends beyond 4 months.

Australians are generally short changing themselves by depositing funds with the Big 4 Banks. Some institutions that generally provide the best ongoing rates include UBank, RaboPlus, Arab Bank, ME Bank, FCCS Credit Union and Bank of Cyprus.

What to look out for

As part of making your savings work hard for you it’s important to understand your individual circumstances and outline what you expect to achieve. It is important be aware of all the terms and conditions attached with opening up an account, especially for savings accounts with promotional/introductory/conditional offers. Some things to consider include:

* Minimum Balance Requirement
Be aware of accounts that pay tiered interest rates and ensure that your balance does not fall below the certain thresholds. In some cases there are also accounts that require you to hold a minimum balance which is non-interest bearing (for example, Citibank Ultimate Saver)

* Introductory / Promotional Rates
Understand what will happen if interest rates move for example will the bonus interest margin move in line with changes to the base rate, or will the advertised rate be available for the full period of the offer? (for example, NAB iSaver, St. George Bank direct saver)

* Introductory / Promotional Period
What period is this offer valid for? People often overlook what the product will revert to at the end of the period. In some instances the limited offer period can by far outweigh the benefit of switching. (for example, AMP eASYSaver Account, Commonwealth Bank NetBank Saver)

* Conditional Account Terms
Do you need to make a regular deposit of a minimum amount each month to qualify for a higher rate? On top, are you restricted in making withdrawals from this account? These conditions reduce the flexibility of accessing funds while enjoying strong rates. (for example, RaboPlus PremiumSaver, Bankwest Smart eSaver)

* Linked Account Required
Does your bank require you to link to an eligible account with the same institution? If so, then you will have to consider the implications of shifting your transactional banking and determine whether the long term benefits outweigh the short term gains. (for example, ANZ Online Saver, Westpac eSaver)

Rate changes post the October RBA rate increase

While most of the media attention is usually focussed on home loans and how lenders have reacted to the RBA rate increase, it is of interest to consider the extent rate changes have been applied to deposit products. Banks are often quick to pass on rate increases to lending products, while making customers wait for rate increases to deposit products. Only 24 per cent of online savings accounts listed on have recorded a rate movement, all of which have been the standard 0.25 per cent change.

Given the competitive nature for deposit taking institutions to win your business, there is a whole heap of competitive products available in the market, so now is no better time than ever before to review your savings options.

Are you getting the best deal? Click here to compare savings accounts.

RATES SNAPSHOT – Deposit Accounts, $10,000
National Market Range – October 20
Online Savings 0.75% – 5.21%
90 Day Term Deposit 1.00% – 4.80%
1 Year Term Deposit 2.00% – 5.70%
3 Year Term Deposit 2.34% – 6.75%


Published: 22 October 2009