When you’re opening a savings account, picking a strong interest rate can be the key to boosting your bank balance. Understanding the different types of rates, what their conditions are and how they benefit you can make achieving those savings goals easier.
Learn how to compare savings accounts, including interest rate offers, and find the best one for you right here with Savvy to start boosting your funds today.
Your savings account will come with a standard variable interest rate, which is the base rate you’ll earn interest on. When comparing the best savings account interest rates, it’s always worth looking out for a competitive base rate. If you can’t meet special terms on your accounts, such as minimum deposits, this will be the rate through which you earn interest.
Interest is earned on a compounding basis. Reportedly called the ‘eighth wonder of the world’ by Albert Einstein, compound interest is one of the best ways to grow the interest you earn in your account. It allows you to earn interest on your savings and interest, making it different from loans where you only pay interest on your outstanding principal. You can use Savvy’s fuss-free compound interest calculator to see how your savings can grow over time.
You can earn a higher interest rate if you meet certain requirements set by a financial institution on your savings account. This could reach up to 1% to 2% more than the base rate. Some of the conditions institutions place on accounts, and are important to compare, include:
Financial institutions offer these rates to entice customers to open savings accounts. They remain high for the initial few months after opening a savings account before dropping to a lower standard variable rate. If you’re considering this type of savings account, it’s important you check how long your high interest lasts and whether you need to pay a minimum deposit, as well as what it’ll revert to after the honeymoon period.
Term deposit interest rates
Putting your money in a locked account, such as a term deposit, allows you to achieve higher base interest rates. These rates increase the longer you choose to keep your money locked up. Widely seen as one of the safest types of savings accounts to park your funds, they have fixed interest rates where most others have variable rates, meaning you can guarantee a set return if you leave your funds untouched for an agreed period.
Obviously, the rate you get on your savings account will be a major factor. You’ll be looking for the highest rate the market has to offer. For instance, if you opened an account with $5,000 at a rate of 0.5% p.a. and made monthly deposits of $500, you would earn $1,768 in interest over ten years, but if you opened an account with the same variables at a rate of 1% p.a., you would earn $3,601 in interest.
Making frequent deposits will earn you more interest. Interest on savings accounts is compounded daily, which means it can benefit your bank balance to pay a smaller amount weekly or fortnightly rather than putting down a lump sum every month. Some institutions require a minimum deposit before you can open an account, such as a term deposit. These can be between $1,000 and $5,000. They may also require you to deposit a minimum monthly amount to gain access to a higher interest rate. If you’re still scratching your head, Savvy’s savings deposit goal calculator is a good way of checking how much you’ll regularly need to pay to reach your goal.
Resisting the temptation to touch your savings will pay off when it comes to the interest earned on your account. Many institutions will give you a certain number of free withdrawals. Accounts with bonus interest conditions can also make earning a higher interest rate conditional on meeting requirements such as minimum withdrawals.
Interest rates on online savings accounts can see-saw in line with the cash rate regularly set by Australia’s central bank. It’s influenced by variables such as the country’s economy, unemployment and inflation. If the Reserve Bank of Australia (RBA) lifts rates, the interest you earn will grow, whereas if the rates drop, you’ll earn less (provided your financial institution passes on rate increases and decreases).
Fees and charges
There are plenty of ‘fee-free’ banks on the market. However, there are some which charge you to park your money in a savings account. When you’re comparing the best savings accounts, it’s good to keep one eye on the charges. These can come in many forms, including fees for account keeping or using another merchant’s ATM system. If the cost of storing your cash outweighs the interest you’re earning, it could make your savings counterproductive.
The better your savings account interest rate, the more return you’ll get on the money you’ve invested. You’re looking for a savings account with high interest to maximise your cash growth. For example, if you opened a savings account with a rate of 1% and deposited $300 every month, you would earn $159 in interest over three years. However, if you had a rate of 1.5%, this would increase to $240. When you’re shopping around and comparing the best deals, use Savvy’s savings calculator to help make picking a rate easier.
Find an account with manageable interest rate conditions. Institutions can often require you to meet several conditions to earn a high interest rate. Ensure you can comfortably meet these before opening an account to avoid missing out on the interest you’re looking for.
Having a clear idea of how much you want to save, and over how long, gives you some guidance over interest rates. For instance, if you’re a saver who’ll be making regular deposits and few withdrawals, a high interest savings account could be the best fit for you.
Honeymoon rates can be a real boon, but you need to make sure they’re suitable for your savings goals, such as if you’re looking at an aggressive high-deposit savings strategy, as opposed to low and slow saving.
Using Savvy’s easy-to-follow side-by-side table, you’ll be able to compare interest rates and any other relevant features to find the one that gives you the biggest return on your cash reserve