As financial gurus say, to get rich it’s enough just set aside 10% of your income every month. To get away from the temptation to spend these savings, financiers advise you to set up an automatic monthly payment of the right amount from your current to the savings account. But along with this opportunity, additional difficulties arise related to the choice of financial organization and the deposit for investing. Should you open a term deposit, online savings account, bonus (incentive) saver or introductory savings account? Should you confide in a large (Westpac, NAB, ANZ or Commonwealth bank) or a small bank (ING, St. George, Suncorp, Me Bank, Bankwest, Bendigo, Macquarie, etc.)? How to compare savings products? Which their parameters to consider? What the term and the frequency of repayment to select? Bankchart.co.au will help you with such a choice.
Step 1. What is a savings account? What are the kinds of such investments?
A savings account is an investment account offered by financial organizations to clients for saving money to a particular goal or to gain interest incomes.
Depending on the possibility of free depositing and withdrawing money from the account, there are such types of investment accounts:
savings accounts – have lower interest rate comparing to the term deposits but provide their owners with the possibility to replenish or to remove money from the account at any time without additional fees and penalties to the interest rate. Such accounts are often tied to transaction accounts and are opened to save up money for a particular goal.
fixed or term deposits - earn to their holders the maximum interest rate, but the client can seldom make additional deposits and almost never withdraw his money without losing the interest. They are opened for a particular period, like 1, 3, 6, 9 months or 1, 2, 3 years. The interest revenues often can be paid on a monthly, quarterly, half-yearly, annually basis or at the end of the maturity.
Depending on a customer, savings accounts can be:
- standard - is an ordinary account for Australian grown residents
- retirement/social - for obtaining societal payments, for example, a social benefit
- for kids – is an account for youth savers or their parents to save up for education, mortgage advance, etc. Usually, they can be issued in the name of parents or guardians, and from 14-16 years old directly to the child.
Also, savings bank accounts can be:
- online – you can open and manage such savings accounts with Internet or mobile banking. Such accounts usually have higher interest rates comparing to ones opened in a branch, because in such a case the bank has lower deposit attracting and servicing expenditures
- joint – is developed for people, who want to manage account jointly. Usually such clients are marrieds, relatives or friends
- introductory – are high-interest savings accounts without any additional requirements to customers, like raised minimum balance. But an increased rate unfortunately usually is active only for a few months, after what standard conditions are applied
- cash management - investment accounts with the possibility of depositing and withdrawing funds without penalties. The interest rate size usually depends on the sum of funds on the balance
- bonus (incentive) saver – raise your interest rate after each month (or other periods) your funds are lying on the bill
Usually, savings accounts are opened in AUD but sometimes banks can offer you other currencies, for example, JPY, GBP or USD.
Step 2. How to compare savings accounts?
The interest rate is the most crucial parameter of savings accounts because it shows the level of revenues which you will get in the future. By our research, its value varies from 0,01% to 2,85% annually on savings accounts and 0,2% to 3,05% on term deposits and can depend on a bank, the deposit term, frequency of repayment and the balance size.
Australian banks do their best to attract new clients and their funds, proposing different promotional conditions. So, it is essential to ask whether the offered rate is constant or act for a few months, or increases with no withdrawals, because such conditions can influent your choice.
It is also important to consider the following parameters before selecting a deposit proposal:
The sum/balance restrictions - some banks establish limits not only on the minimum sum/balance but also on its maximum size, for example, a higher rate is valid on amounts not higher than 500 000 AUD
The frequency of repayment – Australian banks can repay payments on a monthly, quarterly half-yearly and annual basis. The less frequent the percentage is paid, the higher the interest rate may be on them
Free deposit and withdrawals – can be proposed by banks for savings accounts, whereas for fixed deposits such opportunities are limited
Monthly servicing and transaction fees – such tariffs are usually absent, but sometimes they can appear for savings accounts. First of all, it is necessary to learn about the commission for transferring money to the current account, as well as the tariff for withdrawals at branches and ATMs
Requirements to a customer – financial organizations can set restrictions for a client’s years, revenues, nationality, societal state, etc.
Except for the mentioned above parameters, it is also vital to ask a bank manager the following questions:
1) How many branches and own ATMs has the bank? Are they located not far from your home or place work?
2) Has the financial organization both savings accounts and fixed deposits
3) Does the bank offer constant access by Internet banking or mobile application?
4) Has the bank extra benefit products, like cards, insurance and others?
5) For some customers, the possibility to deposit a savings account by coins can be an essential parameter for selecting a bank
Step 3. Features of introductory savings accounts
Savings accounts with introductory rate propose a high percentage only for a limited period, as a rule, for 3-5 months. After this time, the conditions return to standard. Also, the advertising rate works only for first-time customers. For example, if you worked with such accounts before – the bank won’t offer the raised bid.
Of the advantages of introductory deposits worth noting:
- an excellent way to start a savings plan
- the highest level of interest rates on the market
- free deposits and withdrawals of funds
- 24/7 access to such accounts is usually provided
- a low level of minimum balance is required
But they also have disadvantages like:
- the raised rate, as a rule, is valid only a few months
- the basic rate is much lower than the promotional one
So, such a savings account will suit you best, if you have a short-dated savings purpose and you haven’t opened such accounts in the bank before. You should do new research and evaluate the conditions of other banks after the expiration of the promotional period.
When choosing a bank to open an account, you should pay attention to such parameters:
- The level of standard and introductory interest rates. As the advertising percentage rate works only for some limited period of time, proposals with a higher basic rate are more attractive
- The size of minimum balance – some accounts require an increased level of balance to pay the interest, like 10 000 AUD or even more
- The validity of the promotional rate. The more significant is the period, the more attractive is the savings account.
- The sum to which the highest rate applies to. Australian banks can restrict not only the minimum balance but also the maximum amount (for example, 250 000 AUD) till which high rates are offered. More often such a scheme is typical for cash management accounts.
Introductory savings accounts commonly can be opened by Australian residents twelve years and higher. Such deposits usually are insured by the Australian Government guarantee.
Step 4. Features of bonus saver accounts
Bonus or incentive saver accounts are deposits, offering a higher interest rate if the owner fits the bank’s requirements. Such conditions can be: no withdrawals during the month, additional regular replenishment of the account (20 AUD minimum, but as a rule 100-200 AUD) or switching the account from another bank. Such limitations can be set separately or several of them must be ensured to get the raised rate. If you didn’t meet the high percentage getting conditions, do not despair. Try to do it the next month and get the raised rate again.
Incentive saver accounts have such edges:
- Great interest rates
- Good motivation to save up money each month
- Free servicing of the savings account
But there are also such lacks, like:
- There are some bank requirements to get a higher rate
- A low rate when making withdrawals
So, when selecting bonus saver accounts, you should pay attention to the following factors:
- The size of the bonus percentage rate. The higher is the total rate and the lower is the share of bonus rate – the better is the choice for you
- The conditions of getting a more significant interest rate. The fewer restrictions for getting a higher rate, the better is for you
- The conditions of money withdrawals. Some accounts don’t allow you to withdraw money if you want to get a higher rate. Others have such an option if the final increase in the monthly account balance meets the bank requirements
- The minimum balance size – the smaller it is the more convenient the account is for you
- Flexible possibilities – it is essential to get know whether the account allows you free deposits and withdrawals without penalties and additional fees
Generally, a person must also have a transaction account in the bank to open an incentive deposit, but for some financial organizations in Australia, another bank account will do as well. As a rule, bonus saver accounts can be opened by Australian citizens at the age of 18 and older, but also there are proposals for kids on the market.
Step 5. Features of cash management accounts
Cash management accounts are savings accounts, providing their owners with the possibility to make extra investments via online trading platforms. Such accounts generally have high-interest rates and more substantial requirements to the minimum and ongoing balance to gain percentage profit.
The advantages of such accounts are:
- Free access to funds on the account
- High-interest rates
- Simplification of tax returns
So, comparing cash management deposits of different banks, you should pay attention to such features:
- The level of interest rates and its dependence on the balance on the account. The higher are the rates and the lower a minimum balances – the better choice it is for you
- Availability to funds – you should consider whether you are able to withdraw funds through the Internet or mobile banking, EFTPOS, ATMs, checks or in branches
- Whether online trading platform is connected with the offered cash management account. The possibility to invest money to bonds, stocks and currencies online will widen your investment possibilities
- Banks tariffs. You should ask the responsible manager whether the bank charges commissions for servicing the account or making transactions
In order to apply for the account, you must have 16 or 18 years or be older and to be a resident of our country. Instead of blindly trusting the bank it is important to find out whether your funds will be protected by the Australian Government guarantee.
Step 6. Features of term deposits
Financial organizations propose on term deposits the maximum rates on the market, but you will not be able to withdraw money from the account before the maturity date without penalties. The rates size is fixed by the bank, and such deposits are opened for a particular period, as a rule, from short-term like one month to long term, for example, five years. After the expiration date, you can reinvest or withdraw money from the account.
Australian banks usually propose such periodicity of the interest repayment: monthly, quarterly, semi-annually, yearly or at the maturity. The larger is the period, and the less often your bank pays the interest revenue the higher is the rates size. But sometimes banks can establish promotional more substantial rates for short-term proposals.
When comparing fixed deposits, you should consider not only the level of interest rate but also:
- The deposit period
- The frequency of interest repayments
- The possibility to replenish the account
After receiving the interest profit, don’t forget to pay taxes in order not to be fined by agencies.
If unforeseen circumstances happen and you need to withdraw money from the term deposit ahead of the maturity – as a rule, you must send at least 31 days notice to the responsible manager. Also, the bank will charge a penalty to your interest income in such a case.
Step 7. How to open a savings account (online)?
You can apply for a savings account online at most banks via a bank’s site or application. Usually, you should also be 18 years or more, and accounts are commonly opened for residents of Australia, who have constant address of living. For kids savings accounts lower requirements to a client’s age can be set, for example, from 14 years old.
You will also need to attach copies of identity documents to your online application, like a passport, birth certificate, Medicare card or driver’s license. Sometimes, tax file number or exemption are also required by a financial organization. The process of online identification commonly takes less than ten minutes.
After applying the bank will open you a savings account if you have already been a customer of the bank. But is this condition is not met, you must visit a branch of the bank to confirm your identification. After what the financial organization will open you the savings account.
You can get your financial records in a paper form at the branch or online via the bank’s application. Do not forget to take into account the tax on your interest income. To block intrusive advertising calls and to reduce the risk of telephone fraud you can join to Do Not Call Register.
Before you choose a savings account and a bank, evaluate your financial goals and ability to save up money. If you have not worked with the bank before, you should open an introductory account. If you plan to replenish regularly your account, you should take a bonus (incentive) saver account. If you want to be able to invest online in other financial instruments, you should take advantage cash management account. If you have a certain amount that you don’t plan to touch for a fixed time, you’d better use a fixed term deposit.
When selecting an account, you should consider not only the level of interest rates but also other parameters, like the sum/balance restrictions, the frequency of repayment, the ability of free deposit and withdrawals, monthly servicing and transaction fees, requirements to a customer, etc. Also, make sure that your deposit will be insured by the state.