Savings Accounts and Interest Rates

So by this stage of your life I’m guessing you probably have some sort of account with a financial institution — and for the ease of this article I’ll refer to them as bank accounts. Nowadays having some sort of online bank account is a key part of everyday life — which can be used for everything from rent payments to buying items internationally.

To encourage you to use a bank account to store your hard-earned cash, rather than hiding it under the mattress, banks offer interest on the money you keep in your savings accounts. Interest rates currently range from around 0.01% to 3.00%, with the higher interest rates often inclusive of introductory bonuses. It’s definitely a good idea to check out the interest rate that you’re currently receiving from your financial institution, and review it annually.

To put the benefits of an interest rate into perspective, let’s look at the numbers.

If I left $1000 in my savings account for a year and my bank was offering a 2.00% per annum interest rate, at the end of 12-months I should have $1020, give or take a little from compound interest (which is negligible with these figures).

If I leave that same $1000 in my savings account for 10 years earning 2.00% interest per annum and don’t make any deposits or withdrawals, I’ll start to see the effects of compound interest.

Check out the Moneysmart website for more information on compound interest, and play around on the compound interest calculator to see how your own savings will grow.

If you’re concerned about the security of the funds in your savings account, the good news is that the Australian Government has guaranteed deposits up to $250,000 in each Authorised Deposit-taking Institutions (ADIs), such as your bank, building society or credit union. This means that this money is guaranteed by the government if anything happens to the ADI.

When looking for a basic bank account, it’s a good idea to check if the following items are part of the deal, and I’d definitely recommend reading the fact sheet or fine print to ensure that you’re aware of any fees before you sign the dotted line.

• No account keeping fees
• Free monthly statements
• No minimum deposit amounts
• No overdrawn fees

For ease of use I’d probably ensure that any new bank account that I signed up for, also included the following features:

• Ability to link a credit or debit card to the account for ease of access (for more info check out Episode 2 on the How To Money Podcast)
• Online banking availability and an app that I could easily use on my phone
• A linked savings account with a reasonable interest rate

If you’re interested in learning more about savings accounts, I highly recommend you visit ASIC’s Moneysmart website, as it’s full of great information and most importantly free.

Catch us on Twitter @HowToMoneyAUS, on Medium at How To Money Australia or on our podcast over on iTunes.

Important Information

The information on this blog and website is of a general and educational nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision, as we are not an advisory service. We recommend you consult a licensed financial adviser in order to assist you. The information is based on assumptions or market conditions which can change without notice, and this will impact the accuracy of the information provided. This website and blog occasionally provides links to third party sites, aimed at helping you gather the information required to make an informed decision — we may receive payment for these referrals.