How to pick the best high interest savings accounts
1
Check the bonus interest conditions
To get the highest interest rate on your savings each month, you often need to meet specific conditions. For example, you may need to deposit a minimum amount, make no withdrawals, and make transactions on a linked everyday account.
2
Intro offer vs ongoing rate
Unless you’re happy to switch regularly to chase the best savings rate, you may be better off with an account offering a high ongoing interest rate. A lot of high interest savings accounts start off with a high rate but revert to a much lower rate after 3-6 months.
3
Eligibility criteria
As well as the conditions for getting the top rate of interest, there can be other restrictions. For example, some accounts have an upper or lower age limit.
4
Maximum balance
Something else to watch for is limits on the balance the top rate of interest will apply to. For example, you might get the best rate on your balance up to $50k but a much lower rate on amounts above that.
5
Authorised deposit-taking institutions
Is the account provider an ‘authorised deposit-taking institution’? Only these ADIs are covered by the Government’s Financial Claims Scheme which protects your deposits up to a total value of $250,000 per institution.
6
Savings tools
Some savings accounts offer handy tools, like savings trackers, the ability to set up multiple savings ‘buckets’ with different names and automatic reminders so you don’t miss out on the bonus interest.
7
Fees
While most savings accounts in Australia don't charge ongoing fees, some may charge 'ancillary' fees, like fees for requesting statements or making in-person withdrawals at a branch.
Look at the savings rate AND conditions
Megan Birot, Senior Finance Writer
"As someone saving for a home deposit, it’s all about the rate for me. But also the conditions to get that rate. For example, with ING I have to make 5 transactions on the linked transaction account and have to deposit at least $1,000 each month. Nice and simple. Basically, I just want the best rate, without having to jump through hoops to get it."
Megan Birot, Senior Finance Writer
How do high interest savings accounts work?
Base interest rate
This is the standard variable interest rate that applies by default to money saved in the account. It’s usually a relatively low rate. This rate sometimes depends on the balance of the account. For example, a higher rate may apply to the balance up until a point, and then a lower rate kicks in, or vice versa.
Bonus interest rate
With a high interest savings account, the bulk of the interest usually comes via the bonus rate that kicks in if you meet the eligibility criteria. This rate is also usually variable, meaning your bank could change it at any time.
Intro (honeymoon) interest rate
Some accounts offer extra interest (at a fixed rate) for the first few months only, as an incentive to get savers to sign up.
Tiered interest
A savings account with tiered interest pays a different rate on different portions of your balance. For example you might earn 1% p.a. on the first $10,000, then 1.5% p.a. on any amount above that.
Types of high interest savings accounts
Bonus savers
These accounts offer a higher rate of interest or ‘bonus’ interest if the account holder meets certain criteria each month. These accounts often have a fairly meagre base interest rate if the bonus interest isn’t applied.
Standard savings account
If you’re looking for a consistent rate of interest, you might prefer a standard savings account that doesn’t rely on you jumping through hoops to qualify. Some accounts just offer a base rate of interest that applies regardless of how you use the account.
Junior saver account
Junior saver accounts typically offer high interest rates but only to young people (e.g. under 18 years old). It’s usually a requirement that a parent or guardian opens the account on the child’s behalf and is listed as a signatory on the account to make transactions.
First home buyer accounts
Some savings accounts are aimed at people saving for a deposit for a first home. In reality this is essentially a marketing tactic to appeal to first home buyers. Apart from the name, the account itself will likely be no different to any other kind of savings account.
SMSF savings accounts
These accounts are designed for people who are saving for retirement through a self-managed super fund (SMSF) and are looking to earn interest on their money. Functionally, they are very similar to standard savings accounts.
High interest savings account versus mortgage offset account
High interest savings account
- You earn interest on your savings.
- Interest is paid at a variable rate set by your bank.
- You often need to meet certain criteria to qualify for the top rate of interest.
- You may need to pay tax on interest earned.
Offset account
- Your savings reduce the balance of your home loan that interest is charged on.
- Unless it’s a 100% offset account, only a portion of your savings will reduce your interest costs.
- Because you are saving and not earning interest, you won’t need to pay tax.
High interest savings account versus term deposit
High interest savings account
- Variable interest rate.
- No set time frame.
- You can withdraw your money at any time.
Term deposit
- A term deposit has a fixed interest rate.
- Your money is locked away for a set period.
- Penalties apply if you withdraw your money before the end of the term.
How to apply for a high interest savings account
A savings account is one of the most straightforward financial products to apply for. You can usually apply online in a few minutes. This might explain why the majority of Australians put their savings into these accounts.
The only slight complication is that a lot of providers require you to have or apply for a transaction account first.
To open a savings account, you’ll generally need to:
- Be an Australian resident with an Australian postal address.
- Apply with the help of a parent or guardian if you are a child.
- Provide information from your identity documents to prove your identity.
- Provide a tax file number if you don’t want the bank to withhold tax on interest paid.
