Savings accounts offer a higher interest rate than basic transaction accounts and are designed to make your cash work for you.
Following is our 101 guide with an outline of the basics to get your started.
Types of savings accounts
Online savings account
Many people choose an online savings account, which is convenient because you can easily transfer money from your transaction account to take advantage of the higher interest rate. These accounts encourage you to leave your money alone so it can grow through compound interest. Some accounts even reward you with higher interest if you make regular deposits into the account.
Good to remember: online savings accounts may give you less access to your money than ordinary transaction accounts.
Compound interest is interest paid on the initial principal as well as the accumulated interest on money you have invested. Compound interest is like double chocolate topping for your savings. You earn interest on the money you deposit, and on the interest you have already earned – so you earn interest on interest. An online savings account paying monthly interest is an example of an account that earns compound interest.
Savings accounts for kids
There are savings accounts specifically for children that reward them for making regular deposits. However, it is important to understand how income earned in these accounts is treated for tax purposes. Check with the Australian Taxation Office (ATO) to see how these accounts are taxed. Setting up one of these accounts with your child gives you the chance to talk to them about the value of saving. For more information see teaching your kids about money.
Finding a savings account right for you
To decide which savings account is best for you, you can compare these features:
- The interest rate, how regularly you receive the interest and how long any honeymoon or introductory interest rate applies
- Minimum and maximum account balances
- Account-keeping fees
- What interest you lose if you withdraw money and what rewards you get if you deposit money regularly
- Whether a linked account is required.
Authorised deposit-taking Institutions
You should also check whether the account is offered by an Authorised Deposit-taking Institution (ADI). ADIs are regulated by the Australian Prudential Regulation Authority (APRA) so your money is safer with them. Check whether the institution offering the account is on APRA’s list of Authorised Deposit-taking Institutions.
If you’re a low income earner you might qualify for a savings program, offered by some charitable organisations. For more information see other programs for low earners.
Find a basic bank account
Some financial institutions offer basic bank accounts with:
- No account-keeping fees
- Free monthly statements
- No minimum deposit amounts
- No overdrawn fees.
You can find which financial institutions offer these basic bank accounts on the Australian Bankers’ Association’s Affordable Banking website.
Read to start saving? Check out some of the hot savings accounts here.
- See how much you can save with this calculator
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Source: MoneySmart, Savings accounts.