Savings Accounts Advantages and Disadvantages

Consider the pros and cons of savings accounts and learn how to compare them with Savvy by reading our in-depth guide.

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, updated on September 11th, 2023       

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Savings accounts can be a useful tool if you need somewhere to invest your money. These bank accounts can come with a range of advantages and disadvantages and weighing them up to find the best account can be tricky.

Comparing with Savvy simplifies the process, allowing you to consider the pros and cons in an easy-to-use guide while also helping you compare accounts so you can find the best one. So, read our handy guide and take the headaches out of your savings account homework.

What is a savings account?

A savings account is a fund where you can deposit money for safekeeping. Unlike an everyday bank account which is used for day-to-day transactions, these accounts don’t come with a bank card as a way of limiting access to your funds. They also incentivise your saving plans by paying you interest on your contributions, allowing you to grow your balance. This interest is calculated at a rate determined by your bank against your savings account balance. Interest rates on savings accounts are variable, meaning they’ll move in line with inflation and the country’s cash rate if your institution decides to increase or decrease them.

Savings accounts are relatively cheap ways to invest, with many only requiring an initial deposit of a few dollars to open. They also come in many different forms and levels of access. They’re highly flexible and able to be used by a vast range of individuals of all age groups. You can get savings accounts for newborn babies, businesses and pensioners. If you want to resist the temptation to tap into your funds and know exactly how much your rate will be, you can open a term deposit which locks your funds away at a fixed interest rate for a set period.

To open a regular savings account on your own, you must be over 14 years old and an Australian resident. If you’re under 14 years old, a parent or guardian must accompany you to a bricks-and-mortar branch to open a savings account. Parents also sometimes open accounts for their children to pay for their education later in life.

What are the advantages and disadvantages of savings accounts?

If you’re considering opening a savings account, there are a range of pros and cons which are worth weighing up. These features all vary from account to account and bank to bank, so it’s worth comparing them with Savvy to help you find an option that gets you the best bang for your bucks.


  • Paid interest

Perhaps the greatest benefit of savings accounts is that they’re interest-bearing and help you grow your balance over time. The longer you leave your money to invest, the faster your nest egg will grow. Accounts usually feature a base rate and a bonus high interest rate. That high yield rate can be up to ten times the size of the base rate. You can calculate how much interest you could earn using Savvy’s handy savings calculator.

  • Widely available

You’d be hard-pressed to find a financial institution which doesn’t offer a regular savings account. Just about every bank, credit union or building society offers some type of savings account, meaning when you’re comparing options with Savvy, you’ll have plenty of choice.

  • Secure investments

Savings accounts are low-risk investments when compared to more volatile options such as the property or stock market. You also have the safety net of the federal government's Financial Claims Scheme, which guarantees balances up to $250,000 per account holder in the event your institution collapses.

  • Develop good saving habits

Opening a savings account can help you become a better saver. Aside from the ability to watch your balance grow over time, banks often reward you with bonus high interest to incentivise your savings. These rates are conditional on you meeting certain requirements, such as minimum deposit or balance requirements, making a certain number of purchases through a linked transaction account or not making many or any withdrawals.

  • Low ongoing costs

A major advantage of savings accounts is they often come with few costly fees. This not only makes them affordable methods of investing but also avoids your hard-earned interest being eaten up in unnecessary charges. Be sure to consider your options with Savvy to make sure you find an account which offers no fees as part of its service.

  • Allow you to contribute regularly

Chipping into your account is easy, with the ability to transfer funds electronically into your savings or make in-branch deposits. Unlike account types like term deposits, one benefit is you don’t have to make a hefty payment to open an account and can regularly add to your balance.

  • Joint accounts allowed

If you and your partner or spouse have a shared savings goal, you can open a joint savings account. This gives you both access to the same pool of money, allowing you to fast-track the achievement of your target.

  • No lock-in terms

Your savings goal can be as long or as short as you like, with no lock-in terms. This had the added advantage of being able to release your funds if you meet your savings target sooner than you expect.


  • Variable interest rates

Interest rates can fluctuate depending on decisions by your bank or the Reserve Bank’s changes to the cash rate. This can make forecasting how much you make on your investment less predictable.

  • Less access to your money

The name says it all: a savings account is for saving. As such, banks tend to penalise you with lower interest rates or additional fees if you dip into your funds. They also may require you to set up a linked everyday account to access any money.

  • Account requirements

Earning a high bonus interest rate is often conditional on you meeting several account requirements, usually around minimum balances and deposits. Comparing with Savvy will allow you to find a set of conditions that you’re comfortably able to meet.

  • Low performance

One of the disadvantages of savings accounts is their low rate of return. This can be three times lower than other high-yield investment options such as property or the share market.

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.  

site-logos Rabobank High Interest Savings Account
  Maximum interest rate Base interest rate Introductory offer period Government guarantee  
site-logos 5.75% p.a. 4.40% p.a. 4 months Yes
Go to site

Rabobank’s High Interest Savings Account helps grow your savings while offering flexibility and easy access to your money.

More details
site-logos Up Savers Account
  Maximum interest rate Base interest rate Introductory offer period Government guarantee  
site-logos 4.35% 0.00% N/A Yes
Go to site

Use invite code SAVVY10 for $10 upon successful sign-up. (Refer to offer T&Cs on Up website)

More details

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.

You should always consult a given offer's PDS or further documentation in the process of deciding on which loan to choose, as well as seeking independent, professional advice. If you decide to apply with one of the lenders listed above via our website, you will not be dealing with Savvy; any applications or enquiries will be conducted directly with the lender offering that product.

Common savings account questions

How is interest calculated on a savings account?

Banks calculate this by dividing your interest rate by the compounding frequency. They add one to the divided rate and multiply it by the power of months you’re investing over. That figure is then multiplied by your account balance. This formula is essentially:

Final balance = principal x (1 + (interest rate ÷ compounding frequency)) time frame

If you don’t want to have to break out the calculator, though, you can calculate interest using Savvy’s savings calculator.

What are the advantages of a term deposit?

Term deposits have the advantage of allowing you to lock your savings away at a fixed rate across a set timeframe. These accounts have minimal risk, require very little upkeep and protect you from market downturns. You can use Savvy’s compound interest calculator to work out how much you could earn in a term deposit.

Do I have to declare any interest I earn on a savings account?

Yes – you must declare interest on a savings account when filing a tax return. Tax on interest earned on a savings account comes down to what tax bracket you fall into. The Australian Taxation Office (ATO) cross-references between tax returns and information from banks, so it’s important to declare interest on your savings to avoid penalties.

What documents do I need to open an account?

You must provide two forms of photo ID when opening an account. These can include:

  • A driver’s licence
  • An Australian or foreign-issued passport
  • A Medicare card
  • A birth certificate
  • A utility bill

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