Best Savings Accounts Australia: A Beginners Guide

Students want to know the best savings accounts with the highest interest rates in Australia.

 

Are you a risk-averse investor looking to earn decent interest on your investment? If yes, then a Savings Account could be the best way to make money by the "Compounding of Interest" while building positive saving habits.

 

Backed by a Government guarantee of up to $250,000, it is among the safest investment products that can grow your money if you leave it untouched for a considerable time.

 

This blog is the perfect place to learn about a savings account and its benefits, the best providers and simple steps to open one in Australia.

 

 

1. What Is A Saving Account?

 

A savings account is a bank account that enables its investors to earn interest on their deposited funds. It is a low-risk product covered by the Federal Government's guarantee of up to $250,000. This implies that the Government covers up to $250,000 in a savings account in the event of a bank collapse.

 

Savings accounts offer Compound Interest, wherein the account holders earn interest on their interest. Most banks nowadays provide functional and easy-to-use apps to make it easier for people to access their money easily and quickly whenever needed.

 

 

2. How Does A Savings Account Work?

 

Instead of keeping your money inactive in your bank account, you can transfer it into your savings account via Internet banking or mobile banking. With a savings account, you will earn compound interest that will grow your savings over time.

 

Savings account holders earn two types of interest on their account balance:

 

  • The base interest rate: This is the standard interest rate the bank pays regardless of the number of transactions, deposits, or withdrawals you make.

 

  • Conditional bonus rate: Some banks provide this additional interest rate to account holders who meet specific conditions, such as not making withdrawals or depositing a certain amount in the account every month.

 

Banks consider three different components to calculate interest in a savings account:

 

  • The principal amount: The savings in your account

 

  • The interest rate: Savings accounts use compounding interest which means your invested capital and additional interest earn interest.

 

  • Interest payment frequency Determines when the interest amount will move into your account. (Monthly, Quarterly, Half Yearly or Yearly)

 

Based on these components, the bank calculates interest as – (The daily closing balance or principal x interest rate) / 365.

 

This account doesn't come with debit cards, so you need to transfer the withdrawable amount into your bank account to obtain it. As savings accounts pay a reasonable interest rate to inspire people to save money, you might not qualify for interest that month if you withdraw.

 

That's why it works together with your bank account so that you can meet your daily spending needs and unexpected expenses and keep your savings balance intact.

 

 

3. What Are The Different Types Of Savings Accounts?

 

Savings account come in various flavours. Knowledge of its different types can help you make the proper selection.

 

 

Children's Bank Accounts/Junior Banking Accounts

 

  • They are for children below 18 years. 

  • Permission from a parent or a guardian is required to open the account. Still, from 13 years, the children can manage their statements independently.

  • Teaches the habit for children to save

  • Some banks offer higher interest rates of 4.75% p.a. (base interest + bonus interest) to encourage savings. Still, you need to meet certain bonus conditions.

 

 

Savings Accounts For Pensioners

 

  • For seniors and pensioners above 55 or those living on an aged pension. 

  • Most such accounts are linked accounts that work like regular savings accounts. Still, they allow seniors to spend from their savings accounts.

  • Some providers don't charge fees, while others charge a minimal monthly deposit to waive the fee.

 

 

Cash Management Accounts or Investment Accounts

 

  • These accounts are for receiving cash from investments (such as proceeds of sales and dividends) and buying new assets. 

  • Cash management accounts are ideal for people to organize their savings and multiple investments in one convenient location.

  • They usually offer higher interest rates compared to a standard savings account.

 

 

Business Savings Accounts

 

  • Useful for those who want to keep their business's funds safe and earn interest.

  • Often come with slightly lower interest rates than personal accounts 

  • Generally, require a higher minimum balance to earn interest.

 

 

4. How To Open A Savings Account?

 

With over a hundred different savings accounts on the market, it is essential to compare various providers based on interest rates, fees, ongoing offers, features and ease of access, withdrawal restrictions, etc.

 

Here is a shortlist to compare different savings accounts to find the right one for your needs:

 

  • The interest rate they offer, how often they pay it, do they offer a honeymoon or bonus interest rate

  • The conditions required to obtain the highest-interest rate

  • Does it require any minimum account balance?

  • Does it specify any limit on maximum balance and limits your interest rate on balances above a maximum amount?

  • What are the account opening and keeping fees, and what are ATM fees?

  • Does it come with a linked transaction account, or do you need a connected transaction account with them?

  • How often does it allow you to withdraw money from savings at no charge?

  • How does it manage the account – apps, net banking, and mobile banking? 

  • Do you need to make regular deposits in your account, and is there any limit specified for the same?

 

When having found your ideal savings account, you can begin applying for it. Most banks nowadays offer the facility to use and open a savings account online. 

 

You need to meet the eligibility conditions such as age and nationality. These include uploading relevant forms, 100 points of ID and address-proof documents, and providing a TFN (tax file number).

 

Once uploaded, a bank representative will contact you to verify your identity. Once identity verification is successful, you need to deposit a small amount of money to activate your account. After your account is activated, you will receive a debit card in a few business days.

 

 

5. What Is The Best Savings Account In Australia?

 

 

Best Savings Accounts For Students

 

If you are below 35, here are the top savings accounts that give you access to the best savings rates in the market.

 

 

 

Best Savings Accounts For Short-Term Goals

 

If you want to save for a short-term goal of 3 to 6 months, then the following might be a good option.

 

 

 

Savings Accounts With Easy-To-Earn Interest

 

Do you want to earn an excellent ongoing interest rate but want to avoid committing to various monthly conditions? You may consider the following accounts.

 

  • ANZ Save account: Earn a 3% interest on an account balance of less than $250,000.

  • ME Online Savings: Earn 2.7% when you use your ME Debit Mastercard monthly to make four tap-and-go purchases.

 

 

Best Bonus Saver Account

 

  • MyState Bonus Saver: Earn 3.2% p.a. on depositing $20 per month and make at least 5 Visa Debit card transactions.

  • AMP Saver Account: Earn 3.6% on depositing $250 in the past month

  • ING Savings Maximiser: Earn 4.05% on depositing at least $1,000 a month and making at least five or more purchases on the card.

  • NAB Reward Saver: Earn up to 2.25 % p.a. with this NAB savings account and grow your savings with bonus interest (0.10% p.a. variable base rate + 2.15% p.a. variable bonus rate) for regular deposits.

  • Virgin Money Boost Saver (25+-year-olds): Earn up to 3.30% (max rate per annum). The standard variable rate is 0.05%.

 

 

No Monthly Fee Accounts

 

Account Name Account Keeping Fees ATM Fees Features, and Payment Options
Suncorp Everyday Options

(Interest rate: 0.01%)
$0 $0 Linked Account, Interest Rate, Apple Pay, Google Pay, Pay ID
My State Bank Glide Account $0 $0 Apple Pay, Samsung Pay, Google Pay, FitBit Pay, Pay ID
HSBC Everyday Global Account $0 $0 (Access over 13,000 ATMs in Australia at no charge) Apple Pay, Google Pay
ING Orange Everyday $0 $0 (Access at any ATM at zero cost, Rebates on ATM withdrawal charges) Apple Pay, Google Pay, Overseas ATM facilities, Linked account
NAB Classic Banking $0 $0 (Over 7,000 ATMs) Overseas ATM facilities, Interest Rate, Apple Pay, Google Pay.
Citi Global Currency Account $0 $0 (over 3000 Westpac Group customers) Apple Pay, Samsung Pay
Bank West Student Account $0 $0 (Approx. 3000 Commbank Branded ATMs) Apple Pay, Samsung Pay, Google Pay
Bank West Easy Transaction Account $0 $0 (Approx. 3400 Commbank Branded ATMs) Apple Pay, Samsung Pay, Google Pay
Citi Plus Account $0 $0 (Over 3000 Westpac Group ATMs)
Apple Pay, Samsung Pay
Great Southern Bank Everyday Edge Account $0 $0 (Free access to 1000’s ATM countrywide) Apple Pay, Samsung Pay, Google Pay, Overseas ATM facilities
Virgin Money Go Account $0 $0 Apple Pay, Samsung Pay, Google Wallet

 

 

6. Where Can I Put My Money To Earn The Most Interest In Australia?

 

The Government Guarantee is protecting all saving accounts below:
 

Name Max Variable Rate (p.a.) Standard Variable Rate (p.a.) Intro Period Monthly Max Rate Conditions
Virgin Money Boost Saver (25+-year-olds)
Earn up to 3.6% p.a. with the Lock Saver Feature.
3.30% 0.05% Ongoing Deposit $2,000
5 Go account purchases
AMP Saver Account (Up to 3.60% from 1 Nov 2022) 3.60% 0.6% Ongoing Deposit in the previous month
MyState Bank Bonus Saver Account 3.60% 0.05%
 
Ongoing Deposit $20
5 debit card purchases
Rabobank High-Interest Savings Account 4.00% 2.75% 4 months N/A
Citibank Online Saver 3.10% 2.6% 4 months N/A
Virgin Money Grow Saver
You can earn up to 2.3% p.a. by enabling the Lock Saver Feature.
2.00% 0.05% Ongoing Grow balance
No more than 1 withdrawal
NAB iSaver 2.30% 0.85% 4 months N/A
NAB Reward Saver 2.25% 0.1% Ongoing N/A
Westpac Life (18–29-year-olds only) 3.50% 1% Ongoing Grow your balance
5 debit card purchases
Commonwealth Bank NetBank Saver 2.30% 0.85% 5 months N/A

 

 

7. Frequently Asked Questions (FAQs)

 

 

What Are The Pros and Cons of Savings Accounts?

 

Here is a summary of the pros and cons of having a savings account:

 

Pros

 

  • Easy to open and access your account

  • You get the flexibility to withdraw funds anytime 

  • Your interest gets compounded, and you get higher returns on your capital

  • You get a government guarantee of $250,000

  • You develop practical saving habits

 

After knowing the benefits, let us now see what the disadvantages of savings accounts are:

 

  • Interest rates are low compared to other investment options.

  • They are flexible with a linked transaction account.

  • You pay different fees for opening, operating, and maintaining your account. You pay a lot towards these fees, eventually reducing your savings. 

  • It is challenging to close the account. 

 

 

Is A Savings Account A Good Idea?

 

Savings accounts are packed with several features and benefits to generate better returns on your savings. Below are some of the features you can consider to get the maximum returns on your savings.

 

High-Interest Savings Account: It is a great way to increase investment capital as it offers a higher interest rate than regular/everyday transaction accounts. Also, as it is accessible online, it eliminates the need to own a debit card and pay for its usage charges which could eat up your savings.

 

Bonus interest rate: Some providers offer savings accounts with a bonus interest rate if you fulfil certain conditions like:

 

  • Make regular deposits of a certain amount per month.

  • Keep a minimum balance of a certain amount, like $5,000, in the account.

  • If you are below 30 years of age.

 

No-Fee Savings Account: Some banks also offer no-fee savings accounts that save you from paying monthly account-keeping fees and ATM fees to boost your savings.

 

Honeymoon Interest Rates: You can also consider taking advantage of a higher interest rate for the short term, called a honeymoon interest rate. However, consider your account-opening decision on something other than this rate. Also, check what will be the interest rate post this period. 

 

Tip - Try setting up an automatic transfer from your bank account to your savings account for quicker growth. Please do not touch this money; watch how fast it piles up.

 

 

What Influences The Interest Rate of a Savings Account?

 

The prime factor that impacts the savings account's interest rate is the provider. Banks and credit unions may hike their interest rates to attract new deposits. In other cases, they may cut interest rates if they are less dependent on customer deposits.

 

Additionally, the Reserve Bank cash rate is another critical factor that impacts interest rates. When it reduces the cash rate, interest rates drop as financial institutions pass on these cuts to their customers, and vice-versa.

 

 

Which Australian Bank Is Best For Savings?

 

Choose from any of the five top banks that offer the most competitive rates in Australia:

 

Name of the Account Total Interest rate (p.a.)
ING Savings Maximiser 4.05%
Bank of Queensland Future Saver Account - 14 to 35 years 4%
Macquarie Savings Account 4%
Rabobank High-Interest Savings Account 4%
AMP Saver Account (Up to 3.60% from 1 Nov 2022) 3.6%

 

How much interest does $10000 earn in a year? You can use the savings calculator that lets you know how much you will save over a year or a specific period. To use the tool, you need to enter a few things, such as:

 

  • Your initial investment amount

  • The amount you will deposit each month

  • The interest rate you are going to earn

  • The number of years you want to stay invested

 

For example: If you want to invest an initial amount of $10,000 for one year at .6% p.a., you will earn $366.00interest, and your Total savings will be $10,366.00.

 

Here are the high-interest savings accounts that can earn you the most interest:

 

Provider Base Interest Rate Max Interest Rate Total Interest Earned
BOQ

(for Customers between 14-35 years)
0.05% p.a.

Bonus rate: 3.95%. Conditions apply
4.00% p.a. $407
Ubank 0.10% p.a.

Bonus rate: 3.25%. Conditions apply
3.35% p.a. $340
Rabobank 2.50% p.a. Introductory rate for 4 months, then 2.50% p.a.3.60% p.a. $288
Virgin Money 0.05% p.a.

Bonus rate: 3.55%. Conditions apply

3.60% p.a.
$366
Westpac savings account 1.00% p.a.

Bonus rate: 2.50%. Conditions apply
3.50% p.a. $356
Move Bank 0.10%p.a.

Bonus rate: 3.40%. Conditions apply
3.50% p.a. $356
ING savings account 0.55%p.a.

Bonus rate: 3.05%. Conditions apply
4.05%p.a. $366
Australian Unity 1.00%p.a.

Bonus rate: 2.50%. Conditions apply
3.50% p.a. $356
My State Bank 0.05%p.a.

Bonus rate: 3.15%. Conditions apply
3.20% p.a. $325
ANZ savings account - ANZ Plus

(<$ 250,000)
3.00% p.a. 3.00% p.a. $304
HSBC

(Everyday Savings Account)
2.00% p.a.

Intro rate for 3 months, then 2.00% p.a.
3.00% p.a. $226

 

Can I Live off The Interest of $100000?

 

No. You can unlikely live off the interest of only $100,00. Even if you invested this amount in a well-diversified portfolio and have minimal living expenses, it is difficult to sustain your living just on the interest income.

 

 

Can I Lose Money With A Savings Account?

 

Yes. This is possible because the interest after taxes (returns) offered by top savings bank accounts differ from Australia's current inflation rate, i.e., 6.1%. In other words, the value of your money depreciates when held in a savings account.

 

On top of it, you also lose money in the form of fees that banks usually charge from account holders, such as:

 

  • Monthly account-keeping (service) fees

  • Domestic and Overseas ATM withdrawal fees

  • Monthly statement fees

  • EFTPOS fees

  • Electronic transaction fees

  • Branch deposit fees

  • Overseas Purchase and Transaction fees

  • Cheque fees

  • Phone fees

 

Thus, if you keep your money in a savings bank account for the long term, you are guaranteed to lose money.

 

 

Should I Invest My Money In A Savings Account?

 

The interest you earn by investing your money in a savings account is almost always lower than inflation. This way, the value of your money reduces with time. Due to this reason, it makes sense to look for other investment options based on your risk appetite. 

 

Nowadays, you will find a wide range of investment options to choose from. Risk-averse investors can consider low-risk government investment schemes such as bank fixed deposits, government bonds, and CDs. On the other hand, real estatestocksand mutual funds are risky yet rewarding options that can earn you generous profits.

 

 

Do You Have To Pay Tax on Your Savings?

 

Yes. Like any other income source, the interest you receive on your Australian savings account is taxable at your income tax rate.

 

 

What Happens When You Withdraw From Your Savings Account?

 

You can withdraw money from your savings account, provided that you keep the minimum balance required by the bank. If you fail to keep the maximum monthly balance in your account, the bank will levy a penalty based on the duration for which your account balance didn't meet the minimum balance requirement.

 

Also, suppose you don't fulfil the "minimum balance" conditions of the savings account and don't deposit any money into the account for a month. In that case, you will likely earn a lower interest rate on your month's balance. This could be as low as 0.01% p.a.

 

 

How can I get 5% Interest on My Money?

 

No. There is no way to earn a 5% interest rate on a savings account as the maximum interest rate offered by the top Australian banks to date is 4.05%p.a. 

 

ING's high-interest savings account, "Savings Maximiser Account (<$100k)", provides the highest interest rate of 4.05%p.a. on the savings account balance.

 

 

How Much Money Can I Take Out of My Savings Account?

 

There are no restrictions if you withdraw from a regular savings account. However, some savings accounts have features to help you save money and grow your balance.

 

They come with certain restrictions on how much money you can withdraw from the account in a specific period. Examples include a bonus saver account or term deposit. The purpose of such withdrawal restrictions is to prevent account holders from making impulse purchases and save more money.

 

A bonus saver account offers extra monthly interest on your account balance, charges minimal or no fees, and provides incentives to encourage you to keep your money in the account. You can access the funds in urgencies, but you will lose interest for that month.

 

term deposit is another type of savings account that locks your money for a specific duration ranging from 1 month to 5 years, while drawing a fixed interest rate. You must give the bank 31 days' notice to liquidate your term deposit. The money you receive will be at a lower interest rate.

 

 

8. Conclusion

 

Though you may not get significant returns from a savings account, it is a great investment tool to keep your money safe and earn while sleeping.

 

However, before opening an account, ensure you have weighed the pros and cons of using it and that the chosen one suits you.

 

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