High Interest Savings Accounts - What You Need To Know

Many Australians have been turning their attention towards saving rather than spending over the last few years, thanks in part to uncertainty in the global economy which has been lingering for the last few years.

This trend has contributed to major growth in high interest savings accounts, which initially kicked off during the 2000s as internet banking became more popular.

The introduction of online savings accounts by banks without branches – such as ING DIRECT – enabled these banks to offer higher rates of interest thanks to their lower operating costs.

Not to be outdone, the local Australian banks and credit unions quickly followed suit with their own high interest and online-only accounts.

Before the arrival of these accounts, many savings accounts offered by the Australian banks paid very small amounts of interest, sometimes as little as 0.10%. The only way to earn a higher rate of interest was to lock into a term deposit.

Features & benefits

Unsurprisingly, the main benefit of high interest savings accounts is the fact that they pay a much higher rate of interest than traditional savings accounts. The main restriction is the accessibility to your money. It's not just the branchless banks that restrict access to your money - many of the major Australian banks also restrict access to these accounts to phone and internet banking, and may charge you significant fees if you need to make a transaction within a branch. These accounts generally do not have any direct card access. Fortunately, transfers between accounts at the same bank are usually very fast. If you have a transaction account at the same bank, then you as long as you have access to internet banking, you'll be able to get your money very quickly.

What’s in it for customers?

The main benefit for customers is the high rate of interest they are paid on their savings. Traditional savings accounts tend to pay very low rates of interest, so these high interest accounts not only reward savers, but also encourage them to save even more.Another benefit for customers is the accessibility they have to their money when compared to other high interest deposits such as term deposits. A term deposit can keep a person’s money locked up for years unless the customer is willing to pay a penalty for early release. High interest accounts on the other hand provide 24 hour access via phone and internet banking.

What's in it for the banks?

It’s not only customers who benefit from high interest savings accounts. As these types of accounts tend to attract money for longer periods of time, it gives the banks a more stable source of money which they can use to lend to other people in the form of home loans and personal loans.

With the current instability in global money markets, attracting money via high interest savings accounts is a popular strategy for many banks and other financial institutions.

What to look out for

As with most financial products there are a few things you need to look out for when choosing a high interest savings account.Some banks and other account providers offer introductory rates that are more attractive than standard. This is commonly known in the home loan industry as a 'honeymoon rate' where the rate is very good to start with, but may not be so great when the introductory period is over.

If you are choosing an account with an introductory rate, you need to ensure the standard rate is still going to be competitive compared to other available accounts.The ongoing fee is another area to look out for, but just because an account charges a monthly fee doesn’t necessarily mean it’s a bad account. When comparing accounts you should take into consideration both the interest rate as well as the monthly fee to see which will work out best overall for you in your situation.

As well as ongoing fees you also need to be mindful of any transaction fees and charges. Some accounts will charge you a fee if you go over a certain number of transactions in one month, or for various other conditions, so you need to consider how you will use the account when comparing accounts.

Where to start

Most high interest savings accounts are designed to be used online, and that is exactly where you can start your search for the right account. The internet is a great source of information when researching financial products, and the MoneyBuddy website can help you to compare savings accounts and choose the one that will work for you.

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