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The top 2 ways to utilise your high interest savings account during COVID-19

The coronavirus pandemic has caused untold economic hardship. This in turn has left people with no choice but to tighten their belts, spending their hard-earned money on necessities rather than luxuries.

The coronavirus pandemic has caused untold economic hardship. This in turn has left people with no choice but to tighten their belts, spending their hard-earned money on necessities rather than luxuries.

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If you do have any cash left over at the end of a pay cycle, it may be worth opening a high yield savings account to earn extra money.

A high interest savings account will earn more interest than an everyday transaction account, whilst still giving you access to your cash when you need it most.

You may even want to think of a high interest savings account as an emergency savings fund (what better time to have an emergency fund than now) that could help you stash cash away for the future.

How should you use a high interest savings account?

High interest savings accounts provide a great way for people to earn compound interest on their savings.

High interest savings accounts provide a great way for people to earn compound interest on their savings.

There are two ways to best utilise this extra money during the pandemic. The first is to use it to build on your short-term savings and provide yourself with a longer term buffer.

1. Build on your short term savings goals

What are your short term savings goals?

Write them down, define them and then, if you have enough money to open up a high yield savings account, invest the money and watch the interest grow.

The high interest savings account helps you save up cash to reach your short-term goals. Your goals may include a holiday, a new car, a small renovation to your home. It’s whatever you need it to be. It may even be for expenses you foresee six months from now. Imagine being on top of the mega bill you know is coming later in the year.

2. Emergency funds

Emergency funds are more relevant now than ever before. COVID-19 has hit a lot of people very hard and they rarely have emergency funds to fall back on.

During this economic downturn, you may want to rethink your savings strategy.

Your financial planner will tell you should have at least six months of funds to draw on in times of need.

And while we know sometimes that is not possible, any spare cash you have can be put to a high interest savings account that will help build and maintain your six month buffer over time.

Remember, with many of these accounts you can withdraw funds if you need to.

Are there any pitfalls?

Don’t expect to retire on your high interest savings account, because there are caveats you should be aware of.

Don’t expect to retire on your high interest savings account, because there are caveats you should be aware of.

The first is the introductory rate.

Several high-interest savings accounts offer high interest rates for an introductory period only. Be aware of what the introductory rate is, the period of time this applies and what the rate will revert to once the introductory period is over.

Rabobank has an introductory variable rate of 2.25% available for the first four months for new customers with balances up to $250,000. Its base rate is 0.80% and the maximum monthly interest is $18.75.

HBSC offers a maximum interest rate of 2.10%, a base interest of 0.15% and a maximum monthly interest of $17.50.

A quick way to discover which bank offers what rate is by using the InfoChoice High Interest Savings Accounts comparison tool.

Further pitfalls to be aware of are minimum deposit amounts, no withdrawal conditions and whether your high interest account will revert to a low rate if you withdraw too early.

Furthermore, you may have to a certain number of days or months’ notice before withdrawing your funds.

A good way to save money

High interest savings accounts offer a range of benefits.

They can help you save money in an emergency. They can be used as a great budgeting tool. They can be used to save for the holiday you desperately need once the COVID-19 lockdown is over.

It’s also good to know that your money is guaranteed by the Federal Government which guarantees deposits up to $250,000 in Authorised Deposit-Taking Institutions (ADIs) such as banks, building societies and credit unions.

What does this mean?

If the bank goes bankrupt, this money is guaranteed by the government and financial regulator APRA to be paid back to you.

There are plenty of benefits to opening a high interest savings account. Now you just need to find the right one for you.

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