In the face of the cost-of-living challenges, Australians persist in their dedication to bolstering their savings, as indicated by an NAB report. On average, Australians maintain approximately $34,000 in savings; however, this amount varies considerably based on factors such as age, gender, location, and income, as revealed in the report.
“Nearly three quarters (73%) of Australians are trying to build their savings…” the NAB reported.
In pursuit of this goal, many Australians are opting for savings accounts that facilitate faster growth of their savings, whether through a term deposit or a high-interest savings account. Let’s delve deeper into the range of savings accounts available.
Types Of Savings Accounts
Many savings account options are accessible to Australians, each offering distinct advantages and terms.
Outlined below are the primary types of savings accounts. However, it’s important to recognise that banks and financial institutions vary in their offerings and terms and conditions (T&Cs). Therefore, thorough research into the product is essential before choosing an account.
Online Savings Accounts
An online savings account operates primarily through online channels, exclusively accessible via web or mobile devices, thereby eliminating the option for in-branch transactions or inquiries. Typically, these accounts offer a fixed interest rate, disbursed monthly irrespective of deposit or withdrawal frequency.
Online savings accounts function as low-maintenance options where funds can grow passively. However, they often impose minimum and maximum deposit limits.
Bonus Interest Savings Accounts
Bonus interest savings accounts share similarities with online savings accounts, but they offer an additional “bonus” interest rate contingent upon meeting monthly requirements. These requirements vary among accounts and financial institutions but typically involve a minimum number of transactions, growth in account balance compared to the previous month, a specified monthly deposit, and similar conditions.
Meeting these criteria results in the receipt of both the base interest rate and the bonus interest rate, resulting in the total interest rate. For instance, the base interest rate might be 0.05%, while the bonus interest rate could be 5.10%. Consequently, if the bonus criteria are fulfilled, the total interest earned for that month would be 5.15%.
Failure to meet the criteria results in receiving only the base interest rate for that particular month, often significantly lower than the potential total interest rate with the bonus, as illustrated in the above example.
High Interest Savings Accounts
As per a separate report from NAB, over half of Australians (55%) are allocating their funds into high-interest savings accounts.
“New NAB data released today reveals nearly two thirds of younger Australians between 18 and 29 years old have placed their savings in a high interest account, compared to just half of Australians aged over 30,” the March 2023 report indicated.
“High interest savings accounts can be a safe, smart and stable way to manage your money, providing ready access to funds if they’re needed as well as a rewarding interest rate,” Kylie Young, the Executive in charge of Personal Banking at NAB, commented.
Maya McIntyre, a 22-year-old resident of Victoria, maintains her savings in a high-interest account, enabling her to steadily increase her balance due to the elevated interest rates.
“It’s really important to me to be able to save money now and put it away for the future, whether that’s a house, a holiday or money for a rainy day,” McIntyre said.
“I want to be able to see my funds and access them easily if I need to, and at the same time get the interest paid monthly.”
High-interest savings accounts resemble bonus interest rate accounts because of their elevated interest rates. However, the primary distinction with high-interest savings accounts lies in having a single interest rate that doesn’t necessitate meeting monthly criteria to earn interest.
Interest Savings Accounts
An introductory interest savings account provides a considerably higher interest rate compared to the market average, albeit for a limited duration typically ranging between four and six months. While this initial offer attracts customers, it might not be conducive to long-term savings growth.
My preference is to have visibility and easy access to my funds while also receiving monthly interest payments.
Following the expiration of the introductory period, the standard interest rate offered by the account often diminishes, falling below rates available elsewhere. For instance, Macquarie Bank presents an introductory saver account with a 5.55% interest rate for the initial four months, which then reverts to 4.50% after this introductory period concludes.
Additional conditions, such as deposit limits or age brackets, might also apply.
For those prioritising long-term savings, it’s advisable to explore other options beyond the initial four-month period to sustain high-interest savings rates.
Round-Up Accounts
Round-up accounts enable Australians to bolster their savings while engaging in daily transactions using their eligible transaction cards. These accounts function by establishing a link with your transaction card and, based on your predetermined amount, rounding up each transaction to the nearest dollar, $5, $10, and so forth. Subsequently, this rounded-up amount is transferred to your designated savings account.
For instance, if you make a $17 purchase and opt to round up to the nearest $10, the purchase amount would be rounded up to $20. The additional $3 would then be transferred to your savings account, while the $17 would be allocated to the merchant.
Many of Australia’s major banks offer round-up features, which can be activated or deactivated at your discretion.
Term Deposits
As per NAB, term deposits are significantly more favoured by older Australians (aged 65+, 29%) compared to younger counterparts (aged 18-29, 7%), primarily due to their capacity to provide a “guaranteed, set income.”
In essence, a term deposit represents a form of savings account inaccessible for a specific duration, offering a fixed rate of interest disbursed at the end of the term (or periodically, monthly or annually, depending on the bank). Early withdrawal typically incurs a financial penalty.
Opening a term deposit usually necessitates a minimum deposit amount (often around $5000-$10,000), with terms typically spanning from one month to five years.
The interest rate earned typically increases with the duration of the term.
Compare Savings Accounts
Before opening a savings account, numerous factors merit consideration. Firstly, assess your eligibility, as some accounts may have age restrictions targeting specific age demographics or impose minimum age requirements.
Also, it’s important to evaluate whether there are any deposit limits and ensure you have the necessary funds available for savings. Be mindful of upper deposit limits, as depositing more than permitted renders the exercise futile.
Other pertinent factors include account conditions, such as those pertaining to bonus interest rates, introductory offers, or the duration of terms for term deposits. Naturally, compare the available interest rate with prevailing market rates. If you’ve held a savings account for an extended period, researching alternative products may reveal how your current rate measures up against competitors’.
In essence, choosing a savings account entails weighing various considerations. Don’t hesitate to conduct thorough research and transfer your funds if deemed necessary, as advocated by Young to Australians.
“It’s a very competitive market for savers, so now is a great time to shop around and find the best rate and product features that work for you,” Young stated.
DISCLAIMER: This article is for informational purposes only and does not constitute official financial advice. 2 Ezi does not have any business interests with savings clubs nor endorses it as a financial management practice.
