What Is A Savings Account

Learn the ins and outs of savings accounts and how they can help you reach your goals by comparing with Savvy.

Last updated on June 24th, 2022 at 01:53 pm by Kurtis Eichler

Compare and find the best savings account

A savings account gives you a safe place to store your money, no matter your age. Simply pop your funds away, make regular deposits if you can and watch your balance grow.

The market is flooded with different types of savings accounts and offers, so it’s important to know which deals are the best for your needs. By comparing with Savvy, you can find the right account to help you reach your savings goals.

What is a savings account?

A savings account is a secure place where you can deposit your money. This type of account is offered by all financial institutions and allows you to earn interest on the money you deposit. This interest is calculated using a percentage rate, which can either be fixed or variable depending on the account you want to open. To be eligible for a savings account, you must be at least 12 years old and a permanent Australian resident or citizen.

It’s important to understand that savings and transaction accounts are two different beasts. One helps you save and the other allows you to spend. Transaction accounts are meant for day-to-day purchases and won’t accrue interest on your balance. In equal measure, savings accounts won’t come with ATM cards, making it harder to access your money. Comparing deals with Savvy will ensure you open an account with a level of accessibility that suits your needs.

What types of savings accounts can I open?

Choosing a savings account can feel a bit like selecting a flavour at an ice cream shop. There’s often an assortment of choices, but unlike choosing between flavours, picking the right savings account comes down to which one can best help you yield high interest and reach your savings goals. Your options usually include:

Online savings account

This type of savings account is among the most common offered by financial institutions. Online savings accounts boast competitive interest rates and flexible transaction limits. The only way you can usually access your money is by electronic transfer. Depending on who you bank with, these accounts may offer you a higher interest rate for meeting monthly requirements.

Bonus interest account

These accounts reward you with a high interest rate if you meet monthly requirements. This can be a way of incentivising your savings by giving you a bonus rate if you meet certain conditions, such as minimum deposit or balance requirements. To earn bonus interest, you’ll often have to forego withdrawing any funds or capping your withdrawals at a low number.

Locked accounts

Locked accounts, such as term deposits, make it harder for you to access your money. Term deposits are seen as low risk and low maintenance options which usually offer good interest rates. You can lock more than $1,000 in an account with a fixed interest rate and a fixed term. Once that term is up, you can access your funds or roll it over. You can leave your interest to compound or have it paid into a separate linked account. You can use Savvy’s compound interest calculator to see how much you could earn from a term deposit.

Business savings accounts

These accounts operate similarly to high interest savings accounts but are exclusively for business owners and sole traders. You can park your funds in a business savings account and access them for business-related purchases. These accounts can come with bonus interest requirements, depending on who you open them with, but they tend to come with higher minimum balance requirements than standard savings accounts at $10,000 or more.

Joint savings accounts

Ideal for couples, a joint account allows two people to deposit and withdraw from one pool of savings. These accounts come with ‘one to sign’ or ‘both to sign’ options, depending on protection preferences. With two people depositing into one account, you’ll likely hit your savings goals faster and reduce the impact of any fees. Some institutions will also allow you to have more than two account holders if you’re opening a joint account as housemates or business partners.

Kids’ savings accounts

Managing money is one of life’s most important lessons. A kids’ savings account is a good way of teaching youngsters the fundamentals of saving and how to earn interest on the money they’ve put away. By meeting the low minimum deposit requirements and not withdrawing, your child can yield high interest on their money.

Retirement savings accounts

This type of savings account is very similar to a super fund with one big difference: it’s not subject to market volatility. Retirement savings accounts allow you to make deposits while you’re working which can then be accessed on the day you retire. A few institutions still offer retirement savings accounts despite their low rate of return. Alternatively, once you hit retirement age, you can open a pensioner account. This flexible account earns you interest while also giving you the ability to tap into your funds, making it something of a hybrid of transaction and savings accounts

How should I compare savings accounts?

Finding the right savings account comes down to weighing up several variables. Some of the main factors worth considering in the comparison process include:

Interest rates

The higher your interest rate, the more your money will grow. Securing a good interest rate will allow you to get the best bang for your buck, so you should look for the top rate banks are offering. This is the maximum interest rate you’ll earn if you can meet all the account conditions. You should be able to manage these comfortably, otherwise it could be worth opting for a lower base rate with more affordable requirements. Using Savvy’s goal calculator, you can see how long it’ll take to reach your savings goal at different interest rates.

Fees and charges

Banks recoup the cost of letting you store your money in an account by charging a range of fees. Some institutions waive fees if you meet certain monthly benchmarks, but others have a range of charges for account keeping (up to $5), paper statements (about $2.50) and excessive withdrawals (up to $3). Comparing accounts with Savvy will help you avoid your fees outweighing the interest you’ll earn.

Access to money

How you can access your money is different depending on the account you choose to open. If you can live comfortably without your funds, an account with tighter restrictions such as a term deposit could be for you and maximise your interest earnings. Otherwise, an online savings account which lets you transfer to a linked account could suit you if you’re likely to tap into your money from time to time.

Linked accounts

Financial institutions may require you to have a linked account so you can transfer from your savings account. This everyday account has an ATM card so you can make purchases. You should check if your bank requires you to open a linked account with them or if you’re allowed to go through another institution if you prefer to keep a separate transaction account.

 

Frequently asked questions about savings accounts

What documents do I need to open a savings account?

You will need to supply photo identification when opening a savings account. Most institutions require two forms of the following ID:

  • A current driver’s licence
  • A valid passport from any country
  • A Medicare card
How are the interest rates on savings accounts determined?

The Reserve Bank of Australia determines the cash rate each month but it’s up to financial institutions to pass on any change to their customers. If the cash rate rises, you’ll earn more interest on the money you have put away (provided your institution adjusts its interest rates accordingly).

Should I consider introductory offers?

Yes – a honeymoon offer can let you earn high interest for a short period after you open your savings account. These are usually offered to entice customers to open accounts. Once the high interest period ends, though, your interest rate reverts to its much lower base rate. These types of accounts can benefit short-term savers, but it’s always important to check the rate it reverts to before signing up.

Is it possible to be denied a savings account?

Yes – you can be denied a savings account if you don’t meet the eligibility criteria, such as age and residency requirements. Comparing offers with Savvy will help you avoid this by enabling you to quickly and easily see which accounts are suitable for you.

How do I know how much to deposit?

You can use Savvy’s online savings goal calculator to see how much you need to deposit to reach your savings goal. The calculator lets you see how much you’ll need to deposit regularly to reach your savings target. Institutions may make you meet certain deposit requirements to earn higher interest on your savings.