Savings Accounts - October 10th
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Savings Accounts - October 5th
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A savings account is – as the name suggests – a bank account into which you deposit money to accrue interest and build your savings.
Savings accounts are popular and useful for just about anyone who’s trying to save towards a goal. Some investors, such as those with a self-managed super fund, use a savings account as part of their investment portfolio to guarantee receiving some kind of return on their money.
Savings are trending downwards in Australia at the time of writing, with Aussies squirreling away just 8.3% of our income in 2015 compared to 11.8% in 2012. However, it’s not all bad news for those trying to save. A new OECD study on inequality shows that we are still the third-richest country in the world, behind the USA and Canada. We are also one of the few countries where the income earned by the bottom 10% of our population has risen since the GFC, showing positive economic growth where it’s most needed.
When we have realistic goals for our savings and we know what to look for when choosing a savings account, we can do quite well for ourselves. You can make a plan today for building your savings for the future, using our CANSTAR Savings Plan Calculator and Budget Planner Calculator.
If you’re struggling to save and would prefer advice on how to budget to meet your regular financial needs, head on over to our Budgeting & Saving guide. You’ll find all our best hints and tips to help you survive and thrive financially.
There are a few basic things to look for in a savings account, depending on your financial needs:
Some common fees to look out for on various savings accounts are:
The good news is that most savings accounts won’t charge fees for electronic transfers, and you can usually waive the monthly account-keeping fee simply by depositing a certain amount each month.
The average interest rates for savings accounts have dropped across the board since February 2015, when the Reserve Bank of Australia lowered the official cash rate to a record low. Since the cash rate is currently holding steady at 2.00%, we had a look at the average interest rates on offer during this low.
Finding the highest interest rate for a savings account is vital when rates are this low. You can compare interest rates for different types of savings accounts on our website.
94% of the online saver accounts in CANSTAR’s database dropped their base rates after the February RBA meeting, by about 0.27% on average.
Before cash rate change: 2.48% (ave), 3.25% (max)
After cash rate change: 2.22% (ave), 3.00% (max)
(Rates quoted are assessed on an amount of $5,000.)
49 of the 62 cash management accounts dropped their rate by an average of 0.21%.
Before cash rate change: 1.45% (ave), 2.75% (max)
After cash rate change: 1.23% (ave), 2.50% (max)
(Rates quoted are assessed on an amount of $25,000.)
The total rates (base rate plus bonus rate) for bonus accounts have shown a drop of 0.22% on average.
Before cash rate change: 3.03% (ave), 3.75% (max)
After cash rate change: 2.75% (ave), 3.40% (max)
(Rates quoted are assessed on an amount of $10,000.)
SMSF accounts have shown a drop of 0.25% on average off base rates and 0.26% off bonus rates.
Before cash rate change: 2.83% (ave), 3.60% (max)
After cash rate change: 2.57% (ave), 3.35% (max)
(Rates quoted are assessed on an amount of $50,000.)
Kids’ accounts haven’t exactly been spared from changes in the interest they earn, but the drop has been smaller. The total rate has decreased on average by 0.03%. Every bank has a different balancing act between high bonus rates and low base rates for junior accounts, so it definitely pays to do your research on a range of accounts before deciding what would be in your child’s best interest. You can compare Junior Savings Accounts on our website.
Before cash rate change: 2.19% (ave), 5.75% (max)
After cash rate change: 2.15% (ave), 5.50% (max)
(Rates quoted are assessed on an amount of $2,000.)
When it comes to our star ratings and awards, CANSTAR assesses the savings and deposit offerings for several different customer profiles. We assess 3 transactor profiles and 5 saver profiles outlined here.
Flexible Savers do most of their banking online, but they like to keep their options open so they can visit a branch when they need it. They need an account with a reasonable interest rate, easy access to their money, and no conditions restricting how much interest they can earn on their savings. A flexible account suits them more than locking away their money in a term deposit.
Regular Savers deposit a certain amount of money per month towards general savings or a specific goal. They can generally earn a good base rate plus bonus interest for making regular deposits. They need a great interest rate, without needing to access their money.
Cash Managers are active investors who want to put aside money so that it is available whenever an investment opportunity arrives. They need an account where they can access their money while also earning interest on that money between investments. Cash management accounts allow you to earn tiered interest while you wait.
Junior Savers are born when parents help kids to build their own money-handling skills. Having their own bank account teaches them how to deposit and withdraw money, and grow their savings. They need a good interest rate, and an account where relatives can deposit a little boost into the account as well.
SMSF Savers are managing their own superannuation funds for retirement, and this type of account earns interest on the cash component of their investment profile. They need an account with easy access to their funds and a solid interest rate to grow their nest egg. Some banks will waive account fees for seniors and pensioners as an extra perk of reaching maturity.
During the all-consuming GFC, the federal government introduced the Australian Government Deposit Guarantee Scheme. The scheme promoted national financial stability by ensuring that financial institutions had enough funds to continue to run, preventing liquidation. The Financial Claims Scheme remains in place post-GFC as a government guarantee or security on bank deposits (including savings accounts) of up to $250,000 per customer per institution.
The scheme applies to authorised deposit-taking institutions (ADIs), which are approved financial institutions such as banks, building societies, and credit unions. The scheme applies to branches of foreign-owned banks here in Australia, but does not apply to any deposits you might have sitting in overseas branches of Australian banks.
The Financial Claims Scheme covers a wide range of deposits including:
The government deposit guarantee means that if another financial crisis strikes or your bank goes insolvent, the government has promised that you will not lose your money. They will pay the bank the amount of money deposited in that bank, so that you can still withdraw your money from the bank when you need. This is especially reassuring if you have retired or are planning to retire soon, because it means your savings for your retirement are relatively protected.
You can check whether your bank’s deposits have been approved for access to the government guarantee using the list of Guaranteed Liabilities. For more information about the Financial Claims Scheme, see the government’s website or APRA’s website on this topic.
CANSTAR has seen a shift over the past year towards at-call savings accounts and at-call term deposits (advance notice deposits). Customers want to be able to use some of their money and continue to save the rest at the same time.
In 2015, CANSTAR Everyday Banking Award winner CUA told us customers had shifted to preferring at-call term deposits and savings deposit accounts over the past year.
Whichever type of account you choose, you need a consistently competitive rate to grow your savings. Many customers diversify their investment portfolio by investing part of their money in a savings account and part in a term deposit.
Please note that these are a general explanation of the meaning of terms used in relation to savings accounts. Your bank or financial institution may use different terms, and you should read your product disclosure statement carefully to understand everything that may apply to your account. You cannot rely on these terms in relation to any savings account you may purchase.
Account-keeping fees: An ongoing fee charged to cover or partially cover the bank’s internal costs of creating and maintaining the account.
Annual equivalent rate (AER): A rate that can be compared between lenders, which shows what the interest rate would be if interest was paid and compounded once each year. Any advertisement for a savings product that quotes an interest rate must also quote the AER so that you can compare what return you could expect over time.
Basis points: A unit of measurement used in financial situations to describe the percentage change in interest rates or the value of a financial product. One basis point is 0.01% or 0.0001 in decimal form.
Bonus savings account: Accounts that give bonus interest whenever the accountholder makes no withdrawals and deposits a certain amount of money into the account (usually around $50 or $100).
BPay: An electronic bill payment system in Australia. Payment of bills is made through a financial institution’s online or telephone banking facility to merchants who are listed on the register of BPAY billers.
Cash management account: A savings account for high balances (usually $10,000 – $20,000) with a higher interest rate and the flexibility of a transaction account.
Compound interest: Interest calculated on the total funds in the bank account, including interest earned, as opposed to only paying interest on the principal amount. Almost all savings accounts use compound interest.
Debit card: A card that is linked to a transaction account and allows the cardholder to make transactions with merchants and withdrawals from ATMs. Also known as a bank card or cheque card.
Deposit: Money that you put into an account with a financial institution.
Direct deposit: When a transaction is automatically removed from an account and received into a different person’s account. For example, wages are automatically removed from an employer’s bank and deposited into an employee’s bank account.
Introductory rate: An introductory bonus offer where a variable interest rate applies to the account for a set time period. At the end of the bonus period, rates revert to the base rates.
Junior savings account: Savings accounts for children. A parent or guardian operates the account in the child’s name but the child also has access to their account.
Online savings account (OSA): A savings account that is primarily managed on the internet.
Promotional rate: An interest rate which is only offered during a specified promotional period. When the promotional period ends, the interest rate will generally revert to the base rate. Similar to an introductory rate.
Savings account: Bank accounts that pay significant interest back to the account holder and cannot be used to make transactions. Savings accounts typically have higher interest rates than transaction accounts. They can be linked to transaction accounts to make savings available as funds for transactions as needed.
Term deposits: An account with a financial institution where money is deposited for a set term (period of time) and earns interest when that term ends. The interest rate is usually fixed for the term of the deposit and is generally higher than a transaction account, but not always higher than some other at-call high interest savings accounts. There are fees charged if the investor withdraws their money before the end of the term. Also known as a fixed deposit.
Transaction account: A deposit account that serves the purpose of providing frequent access to funds in your account for debit card transactions made through EFTPOS at merchants, branches, ATMs, and also for the use of cheques.
Withdrawal: When instructions are carried out to pay money out of your account and it is paid, e.g. getting cash out of an ATM.
Wire Transfer: Instructions to the bank to send funds to a designated account. Similar to a bank transfer.
Yield: The rate of return earned on an investment.
For more information on how CANSTAR rates savings accounts, read our latest star ratings report.