Savings Accounts: Learn the Lingo
What is a Saving Account?
A savings account is a secure bank account that earns interest over time. It may be a good place to put money when you are saving up for a goal (e.g. home deposit, car, holiday etc.). This is because you are guaranteed the interest payments (and you get interest on your interest - “cumulative interest”) and your money is secure. They are also a great place to start managing your money.
What are Interest Rates on Saving Accounts?
When you put your money into a Saving Account at 'ABC Bank', you are giving ABC Bank your money to use, e.g. ABC Bank could lend your money to people who need a home loan or invest it in other ways. The “interest rate” (% per year) is the fee ABC Bank pays you to take your money and use it for their other purposes. It's like your opportunity cost. This interest rate % changes from time to time.
What are Some of the Different Types of Savings Accounts?
Online savings accounts - for people who want to access their money relatively regularly and do not want to make regular contributions. It is also an online account (manage the account online) and often linked to an everyday account (so easy to move money between your everyday account & your savings account).
Bonus saver or Reward savings account - you have a base interest rate (low) + bonus interest rate (higher) which you get if you make regular contributions.
This is useful for people who want to put money into an account regularly (e.g. weekly contributions) and do not need to have access to the money day to day.
Term deposit - this is used for people who want to lock their money away for a specified amount of time. Interest rates vary depending on the duration and interest is often paid at the end of the period.
Here are some things to consider when choosing an account (or things to ask!):
- what are the conditions on the interest rate? (e.g. is this only for a period of time and then becomes lower?)
- is there minimum or maximum account balance?
- are there any fees? (will you be charged for the account, what are the withdraw fees etc) - ideally no!
- do you need to make regular deposits into the account and if so, how much? and how regularly?
- will you lose interest if you withdraw money?
- is a linked account required
Also, it is important to have your account with a “Authorised Deposit- taking Institution” (ADI) which are regulated by Australian Prudential Regulation Authority (APRA) which basically means the money is safer.
Check out https://www.ausbanking.org.au/consumers/affordable- banking/ for even more information.
Once you have chosen the right account for you, it’s time to open it.