Savings Accounts

What is a savings account?

Savings accounts are accounts held at a bank or financial institution.

These accounts enable customers to save money and accrue interest on the amount of money they have deposited into a specific type of savings account.

There are different types of saving accounts for all types of age groups from children through to pensioners and can include Children Savings accounts, Self-Managed Super and Retirement accounts, Cash Management accounts, Incentive & Bonus Saver accounts, High Interest accounts, Online Savings accounts and Everyday Transaction accounts.

Savings accounts are different from transactions accounts.

Savings accounts primarily exist to help you grow your funds and have higher interest rates than standard transaction accounts.

As such, savings accounts allow you to save your money more quickly than transactional bank accounts, meaning you could purchase the high ticket items such as a new car or holiday sooner. You could even use a savings account for a deposit on a home.

Savings accounts usually require a minimum monthly deposit, to earn the high interest rate.

Savings accounts are usually online only accounts, that require no debit card, making it easier to save money and harder to dip into your savings.

Advantages and disadvantages of savings accounts

Advantages

• Savings accounts are a secure bank account and safe investment choice
• They are covered under the Australian Government Guarantee
• They are a great way to help you budget for large purchases
• You earn a higher interest rate than your standard transaction account.

Disadvantages

• You must deposit a set amount each month and make no (or limited) withdrawals in order to receive the high bonus interest rate
• It’s harder to access you money from an ATM as you are not provided with a debit card
• As the official cash rate fluctuates, so too does your interest rate.

How to apply for a savings account online

Before you open a savings account, you will need to fill out an online application form, which will require all your personal details (name, address, date of birth, etc) and your tax file number to verify your identity. Once verified, you can deposit funds immediately in order to get started.

Which savings account suits my needs?

All savings accounts come with different types of features. Always weigh up the different options available, before you decide on which savings account best suits your needs.

Here are some of the features to consider:

1. Low/no fees
In most cases, banks don’t charge a monthly maintenance fee for a savings account. Look into all different types of fees they might charge you throughout the year. These fees may include annual or transaction fees. Once you have compared, pick the one with the least amount of fees so you get to keep most of the money in your account for your own personal benefit.

2. High or competitive interest rates
Higher interest rates mean you will end up with more money in your account. Always check the conditions for receiving the bonus or introductory rate. Be sure to check the standard rate as this is what your account will revert to as soon as your introductory period is up.

3.Accessing your money
The purpose of a savings account is to try to save your money rather than access it regularly and deplete the funds. Most savings accounts only allow minimal withdrawals and some don’t allow any at all. You will be charged for each withdrawal, but some see this as an incentive to not touch the account.

4. Deposit requirements
Most savings account require that you make a minimum deposit each month in order to earn your interest. Find one that works in with your budget, so if you have a tighter budget, you may need an account with lower minimum deposit amounts.

5. Linked accounts
In order to access your money for withdrawal purposes, you will need a linked account. Some banks allow you to link a savings account to your current transaction account. Linking your accounts means you are able to transfer money from one to the other with ease via online banking.

6. Multiple Savings Accounts
Many banks allow you to open multiple savings accounts at no cost. This is a great way to save up for different products or services at the same time. Multiple savings accounts can help you put a little money aside every month into each of your nominated savings accounts to help you keep track of your savings goals.

Tip: Rename your accounts, so you know what each account is for.

Types of accounts

High interest savings account

What is a high interest savings account?

A high interest savings account is a savings account that offers a highly competitive interest rate. All high interest savings accounts have variable interest rates, which means your interest rate will fluctuate in response to changes to the Reserve Bank cash rate.

InfoChoice can help you compare over 188 high interest savings accounts:

How do high interest savings accounts work?

Savings accounts are specifically designed to help you save money, therefore most of them don’t charge maintenance fees and give you higher interest to help you reach your goals sooner.

You’ll be able to start earning compound interest (the interest you get on the money you initially deposited, called the principal and the interest you’ve already earned) the moment you put money into your account. The highest interest rates are usually made up of a base rate and a special rate.

Conditions always apply, they could include a minimum monthly deposit amount or monthly withdrawal limits.

What features should I look for in a high interest savings account?

High interest rates savings accounts come with myriad features, following are the ones you should be most aware of.

1. Competitive rates
One of the most important features to look out for is long term competitive rates. Many savings accounts entice you with an introductory offer, but then revert to a standard rate once introductory period is up.

2. No account fees
Many savings accounts don’t charge monthly or annual fees. However, it is important to know what other fees you may charged, as there may be transaction fees for ATM or over the counter withdrawals.

3. Automatic transfers
You may be required to maintain a certain monthly balance in order to receive the highest interest possible. The easiest way to ensure that you do this is to set up automatic online transfers, so you know the minimum repayment is being made each month without fail.

How can I get the most out of my high interest savings account?

There are a couple of ways to get the most out of your savings account. Firstly, check if there’s a special rate that’s available to you provided you meet the requirements. These requirements could be as simple as not making any withdrawals for the month or making sure the minimum monthly amount is being deposited on time.

The second way is to build up your balance.

The more you have, the more interest you will earn because your interest is calculated as a percentage of your account balance.

Tip: If you have any money sitting in an account that isn’t needed in the near future, put it in to a savings account to help boost the interest you will earn.

Who can apply for a high interest savings account in Australia?

Applying for a savings account is an easy thing to do, with savings accounts available to everyone. However, consider the following before choosing which account best suits your needs:

1. Select an age appropriate account
If you’re under 18, look into kids savings accounts as they have special offers to help you get started when you have a smaller amount of savings to start with.

2. Minimum deposits
Most accounts can be opened with a very small amount of money, but some may require a minimum monthly deposit from you. If that is the case, determine how much that might be and if it’s within your budget.

3. What’s the best way to open a high interest savings account?
You can usually open a savings account over the phone, online or in a bank branch if you prefer.

4. What information will I need to apply for a high interest savings account?
As with all accounts you’ll need a few details in order to apply, including your contact details, personal details and identification. If you have a transaction account that you would like connected to the savings account, be sure to have those details available too.

Online Savings Accounts

Online savings accounts are a great option if you don’t want to pay fees, but you do want to earn higher interest.

An Online Savings account is a no frills savings account option that offers higher interest than normal transaction accounts.

However, the pay-off is an account with restricted access.

Over the counter and cheque facilities are not included in online savings accounts. Customers are required to make all transfers either online or over the phone rather than at a branch. That said, the majority of online savings accounts need to be linked to a transaction account in order to run.

Online savings accounts have a variable interest rate which means they are subject to fluctuations. However, many online lenders offer introductory high interest rates which will only last for a few months. As such, you should always find out what the standard rate will be once the introductory period is over.

Bonus rates are also available from most online lenders. You can take advantage of bonus rates by making regular minimum deposits to your account.

Online savings accounts are the easiest option for most people, as you don’t need to visit a branch to do anything that is related to this account.

InfoChoice compares over 85 Online Savings accounts:

How can I access my online savings account?

Your online account can easily be accessed via internet banking whether it be through the website or phone app. All you will need is a username and password.

What are the advantages and disadvantages of an online savings account?

Advantages

• Every transaction can be made online: you don’t need to go into a branch, as everything can be done online or over the phone
• You can open different accounts for different savings goals: you can also rename the accounts so you know which one is for what purpose
• You can access you money easily: as long as your savings account is connected to your transaction account, you can easily transfer funds between accounts.

Disadvantages

• No face to face contact: there is no branch to visit if you would like to speak to someone face to face
• Variable only: interest rate is variable only, so it will fluctuate as the daily rate fluctuates.

How do I apply for an online savings account?

Provided you already have an internet banking account, it is relatively easy to open an online savings account. Most banks offer savings accounts; all you need to do is log into your account and search for the ‘new accounts’ tab.

You usually don’t need to fill out an application if you already have an online transaction account.

This is the perfect time to open a couple of different savings accounts for different goals and don’t forget to name them so you know what each one is for.

Bonus Saver accounts

A Bonus Saver account, also known as an incentive account, is a savings account that rewards you in the form of bonus interest rates when you meet certain conditions such as not missing any of your minimum monthly deposits or making no withdrawals.

Some banks may require that you link your savings account to a transaction account in order to qualify for the bonus rate.

Some banks require that you make a minimum repayment of $20 per month, in order to unlock these bonuses. However, other institutions may require a larger monthly deposit. Always check with the bank to see what your repayments will be before you sign up.

InfoChoice compares over 73 Bonus Saver accounts:

How can a bonus saver account benefit me?

These accounts are designed to help you save money. The bank looks at how much you have put into the account and compares the amount from the first day of the month to the last to ensure it has increased by a set amount. If you have increased your savings to their requirements, then you will receive the bonus interest.

The bonus rate is an additional percentage determined by the bank and then added to their standard variable interest rate.

What’s the difference between an Introductory Bonus account and a Bonus Saver account?

With an Introductory Bonus account you need to be a new customer and your high interest rate will only be valid for a few months. After that time it reverts to the standard rate.With a Bonus Saver account, you usually receive the bonus interest when you’re able to deposit a certain minimum amount per month and make no withdrawals. You don’t necessarily have to be a new customer for this account.

Do I lose the bonus interest permanently if I don’t meet the conditions for one month?

No! The bonus interest is available for each month that you meet the requirements. So if you miss one month, that is the only month that will be affected.

What features should I look for in an Australian bonus saver account?

When comparing bonus saver accounts, compare the following features:

• The amount of bonus interest you get
  Each bank offers something different. Find the bank that offers the highest bonus interest, taking into account the minimum monthly repayments they will expect from you.
• Deposit conditions
  The most common condition relates to how much you deposit per month. Make sure you are able to pay the minimum amount before agreeing to opening that account.
• Withdrawal conditions
  Some banks require that you don’t make any withdrawals whilst others allow you to, provided you put that money back into the account before the end of the month.
  Pick an account that suits your needs.

What are the advantages of disadvantages of bonus savings accounts?

Advantages

• You get a higher interest rate. Provided you stick to your conditions, you could boost your savings relatively quickly.
• No fees. These types of accounts usually do not have monthly account keeping fees.
• Helps you save. Having a set monthly amount that is required will help you save.

Disadvantages

• Terms and conditions. Sometimes it’s hard to meet the strict terms of a bonus saver account on a month-to-month basis.
• Funds not easily accessible. Lack of accessibility is done for an obvious reason: if you can’t access your savings easily, you won’t spend your savings easily. However, it doesn’t help if you need to access the money quickly for emergency reasons.

Cash Management accounts

A Cash Management account is an account held with a financial institution that lets you earn higher interest, gives you easy access to your savings and allows you to move funds between accounts and investments. As with all types of accounts, the interest rates, features and conditions vary from bank to bank.

How does a cash management account work?

A cash management account is basically a savings account, however some financial institutions refer to them as investment accounts.

Having an account such as this, means it is a lot easier for you to access your money whenever you need it. Many of these accounts come with online trading platforms to save you time when managing your investments.

InfoChoice compares over 30 Cash Management savings accounts:

How a cash management account help you?

These accounts tend to offer higher interest rates in comparison to standard savings accounts. Oftentimes, these accounts have high balances, which means the amount you earn in interest could be quite substantial.

Unlike other savings accounts, cash management accounts allow you to access funds at ATMs and allow you to pay bills via BPAY.

Another great benefit of a Cash Management account is that all related transactions appear on a single statement. This could be very useful when it comes to tax time.

Keep in mind that cash management accounts usually have requirements such as a minimum account opening balance. This can be anywhere from $5000-$10,000.

Some accounts have a minimum monthly deposit requirement, whilst others don’t.

Always compare the relevant minimum deposit amounts before locking in to any particular account.

What criteria do I need to meet in order to be eligible for a Cash Management account?

As with most accounts you need to be over 18 years of age top open a Cash Management account. However, some institutions will allow you to be eligible from 16 years of age. You will need to be an Australian resident in order to apply.

Can I apply for a Cash Management fund online?

Yes you can. When applying for any account you will always be asked to verify your identification, age and residency status.

What should I look for when comparing cash management accounts?

By comparing the following features you will be able to make an informed decision as to which account is best for you:

1. Interest rate
Check out what interest rate is being offered. Some institutions have the same interest rate no matter how much you deposit. Others, have a tiered system depending on the amount you put in.

2. Access to funds
If you would like to be able to access your funds whenever you need them, look for funds that allow access and payments via ATMs, EFTPOS, Internet banking, phone banking, cheque books, branch banking, and even BPAY.

3. Fees and charges
Cash management accounts usually don’t charge monthly management fees. Online and phone transactions are usually free. However, it’s up to the financial institution as to whether or not they charge transaction fees, or use cheques and staff assisted transactions.

Children’s Savings accounts

There are many savings accounts made specifically for children. These accounts are a great way to teach kids how to save and establish excellent money habits early on in life.

Interest rates do vary depending on which bank you go with, but there are plenty of institutions offering no fees and a range of features suited to kids through the Children’s Savings accounts.

Giving children access to their savings account, will teach them valuable lessons that will come in handy when they are grown up and financially independent. There’s no better way for children to learn about money, saving and banking than through a savings account designed specifically for them.

InfoChoice compares over 38 Children’s Savings accounts:

Standard features of Children’s Savings accounts

Children’s accounts usually allow free deposits and withdrawals. Many will offer a high level of bonus interest for the months when no withdrawals have been made.

The benefit of these two features are they teach kids that if they don’t touch their savings, they will be rewarded with bonus interest, and these accounts give them incentive not to withdraw money unnecessarily.

There is usually a bank imposed age restriction on children being able to open an account themselves, so in most cases you will need to open the account for your child.

How do I compare savings accounts for my children?

Here are the features you should look for when considering a Childen’s Savings account:

1. A competitive interest rate
Children’s Savings accounts offer a higher interest rate for regular deposits and no withdrawals. It’s best to compare banks and see which one will give you the most competitive rate.

2. No monthly fees
There may not be any account keeping fees for a children’s savings account, but their account might have limited withdrawal limits.

3. Children’s banking programs in Australia
Some banks in Australia have programs that give children direct access to online educational portals and stationery which are all helpful to learn about savings and finances.

Advantages and disadvantages to Children’s Savings accounts

Advantages

• They receive more interest compared to adults savings accounts. They could earn bonus interest simply by making very small monthly deposits and not withdrawing any money.
• There are usually no fees and charges. This allows kids to save more money as they don’t need to pay any fees.
• Babies can have Children Savings accounts. As soon as you have your baby’s birth certificate, you can open an account for them.

Disadvantages

• The taxes could be quite high. They may need to pay tax if they earn more than $416 in one year.
• There is an age limit. Children’s accounts are usually for kids under the age of 14. Once they are older, they are able to access their account and use it as an adult uses their account.

Self-Managed Super Fund (SMSF) savings account

A Self-Managed Super Fund (SMSF) savings account is a convenient way to save and invest for your retirement, with many providers offering zero fees, good returns and flexible access options.

A SMSF savings account gives you complete control over where your superannuation is invested, as you manage the fund yourself rather than one that’s run on our behalf.

InfoChoice compares over 31 Self-Managed Super and Retirement savings accounts:

Is an SMSF the right option for you?

SMSFs aren’t always the right option for everyone.

There are a few things you need to take into consideration such as the amount of administration work that’s required to maintain an SMSF, the different costs involved and the benefits and risks to consider.

1. Admin and compliance

There are some basic rules that need to be adhered to when running your own SMSF. Make sure you meet the following criteria and stick to the rules:

• No more than four members
• Must have either a corporate trustee or an individual structure
• Must be registered with the ATO
• Must only be used to provide retirement benefits to members
• Your fund must have a documented investment strategy kept on file
• This strategy must be continually reviewed and updated to make sure all members’ needs are met. All changes must be documented
• All investments made by the fund must pass the ‘sole-purpose test’. This means the investments are only for the purpose of providing retirement benefits to members.

2. Rules on contributions

The fund can accept contributions from employer contributions, personal contributions, salary sacrifice contributions, super co-contributions and eligible spouse contributions. All contributions must be documented and allocated to the fund member’s account within 28 days.

Each member’s concessional (pre-tax) contributions must not exceed $25,000 per annum and any member under 65 years of age can contribute up to $300,000 over three years in non-concessional (after tax) contributions. However, their total super balance must not exceed $1.4 million.

3. Annual ATO admin

In order to remain compliant with the ATO there are some admin tasks that need to be performed each financial year:

• An audit must be carried out each financial year by an approved SMSF auditor.
• All assets must be valued each financial year.
• An annual operating statement must be prepared and lodged with the ATO.
• An annual return must prepared and lodged with the ATO and the annual supervisory levy must be paid.

What are the benefits of an SMSF?

There are several benefits to opening an SMSF savings account, here are the main advantages:

• Complete control over your super
• SMSF income is taxed at the lower tax rate of 15%.
• You can quickly and easily adjust you asset allocation if market conditions change.
• You can have up to four family members join the fund.