How Does a Savings Account Work?

Read more about savings accounts to help you compare and find the best one for you with Savvy.

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, updated on September 11th, 2023       

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A savings account can provide you with a safe and secure place to house your money. No two accounts are the same, though, with each bank offering a slew of varying interest rates, terms and conditions and bonuses.

Savvy takes the headaches out of searching for a savings account. We offer easy-to-follow comparison information so you can find out more about how a savings account works and how to find the best one for your needs today.

What is a savings account and how do they work?

Savings accounts give you a safe place to house money and accrue interest. Where a bank account’s primary purpose is for day-to-day transactions and spending, a savings account allows you to put money aside that you can afford to do without.

They can take many forms, with financial institutions providing savings accounts tailored to demographics such as children, students, pensioners, couples and business owners. These accounts come with varying requirements and terms which best suit the account holder’s age and financial status.

Interest can be compounded daily, monthly, quarterly or annually, depending on the type of account you choose to open. Banks determine these interest rates based on the national cash rate, which is set by the Reserve Bank of Australia (RBA). This interest is calculated at a percentage set by your financial institution against your balance. You can use Savvy’s handy compound interest calculator to estimate how much interest you would earn from your savings.

Institutions will likely offer two different rates on savings accounts: a base interest rate and a higher bonus interest rate. To qualify for the higher rate, you must meet certain account conditions such as minimum deposits or balances and no withdrawals. These bonus rates can represent an increase of up to 200% or more on their original rates.

Savings accounts also come with different levels of access. Where an online savings account gives you easier access to your money, a term deposit locks your funds away until the term has matured.

The conditions for opening an account are straightforward: you must be 14 years old and have an Australian residential address for tax purposes. If you’re under 14 years old, you can open an account at a branch, but you must be accompanied by a parent or carer.

What factors can impact the interest I earn?

Choosing the right savings account can seem like a minefield, especially when it comes to weighing up the individual variables. Comparing with Savvy makes the process stress-free, providing you with the tips and tricks to get the best account on the market. Things to compare include:

Interest rates

Getting an account with a high interest rate means you’ll grow your account balance faster. Savvy allows you to do a side-by-side comparison of competitive deals to find the best one for you. We also offer an easy-to-use savings calculator to allow you to road-test various rates to see how they work with your savings goal. Achieving a higher rate can also earn you more interest. For example, if you deposited $1,500 monthly into an account earning 0.5% p.a., you’d earn $1,115 interest over five years. However, if the rate on your account was 1% p.a., your interest would reach $2,249 in the same period.

Account requirements

Savings accounts can come with various conditions, such as minimum balances or deposits. Achieving a bonus rate is almost always conditional on you meeting these requirements. For instance, you may be required to deposit $1,000 into your online savings account every month. You can compare with Savvy to find a set of conditions which you can comfortably afford to meet.


Before opening a savings account, work out how you’ll be contributing to your fund. Some accounts are more restrictive than others, so it’s important to do your homework. A term deposit will only allow you to make deposits upon maturity, whereas an online savings account allows you to top up whenever you want. You can use Savvy’s goal calculator to work out how much you have to regularly deposit to reach your savings goal.


When it comes to allowing you to dip into your savings account, some funds are more flexible than others. For instance, term deposits won’t let you dip into your funds until maturity, whereas online savings accounts will allow you to transfer whenever you want. Comparing with Savvy will enable you to more accurately decide on which offer affords you the level of access you need.


While savings accounts are pretty much fee-free, there are some costs to watch out for when comparing deals with Savvy. These costs, such as $5 monthly account fees or $2.50 paper statement charges, can seem insignificant in themselves, but added up over 12 months they can start to eat into the interest you earn.

Linked accounts

A linked everyday account can be a handy way of accessing your cash to spend on living expenses. Some financial institutions require you to open an account with them, while others allow you to keep your transaction account with another institution, so it’s important to weigh up each institution’s stance on this if you want to keep your existing account.


Institutions can come with bonuses such as ‘round-up’ features. Every time you make a purchase on your linked account, the amount is rounded up to the nearest dollar and the extra is fed back into your savings account. Some banks also offer tools to make saving easier, such as a goal tracker on your mobile app. This breaks your goal into weekly targets and helps you set up automatic deposits.

Compare savings accounts

Are you looking to grow your savings?  Compare a wide range of savings accounts with Savvy so you find the best deal in Australia and the highest interest rate to help grow your savings.  

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Disclaimer: Savvy is not advising or recommending any particular product to you. We provide general information on products for the purposes of comparison, but your personal situation or goals are not considered here. Although we try to make our comparisons as thorough as possible, we do not have information on all products on the market on our site.

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Frequently asked savings account questions

What’s the difference between a bank account and a savings account?

A bank account, or transaction account, is for day-to-day spending and a savings account is meant for saving money to earn interest. A bank account doesn’t earn interest, whereas traditional savings accounts can come with competitive interest rates to earn you a return on your money.

Do savings accounts come with debit or ATM cards?

No – however, you can set up a linked everyday account. This will enable you to transfer to your everyday account and spend or withdraw using a bank card.

Do I need to pay tax on interest I earn in a savings account?

Yes – any interest earned on your savings needs to be declared on your tax return for that financial year. This includes if you fall within the tax-free threshold.

Can I open a savings account if I'm not an Australian resident?

Yes – you can open a savings account if you’re a non-permanent resident. Some banks allow you to open an account three months before you arrive in the country. However, you won’t be able to make any transfers or withdrawals until you have physically presented at a branch.

How do I close a savings account?

Closing a traditional savings account is as simple as contacting your financial institution and asking for the account to be wrapped up. You’ll need to transfer your balance to another account to do this.

Should I open a savings account with my partner?

Opening a joint savings account with your partner can be a great way of achieving a shared savings goal, as two people contribute to the same pool of money. Joint savings accounts come with ‘one to sign’ or ‘both to sign’ protections. Make sure you and your partner are on the same page financially and are agreed on what happens to funds in the account if it is closed.

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