With the number of banks in the market today, it can be hard to decide which bank, let alone which savings account, is best for you. I know several people who are still with their banks’ original savings account from decades ago, some of which have interest rates as low as 0.01%
If this is you, then it’s time to switch! I’ve done the hard work for you in this post and am excited to bring you all the current rates available as well as my own interest rate calculator so you can see how much more you’d save by switching. As usual please note that some all accounts will have certain conditions and it’s up to you to decide what is right for you.
Things to consider
- The interest rate, how regularly you receive the interest and how long any introductory interest rate applies
- Minimum and maximum account balances
- Account-keeping fees
- Penalties for withdrawing money
- Rewards for if you deposit money regularly
- Whether a linked account is required
- How easy is it to obtain money when needed? e.g do they have an app?
Why a savings account?
Savings accounts are specifically designed to help you grow your savings faster. They offer a higher interest rate than basic everyday transaction accounts. Many also make it harder or less convenient for you to access your money, sometimes with fees for withdrawing. All these factors are important to consider.
Most people choose an online savings account that is convenient and allows you to easily transfer money from your transaction account to take advantage of the higher interest rate. These accounts encourage you to leave your money alone so it can grow through compound interest. Many even reward you with higher interest if you make regular deposits into the account and don’t withdraw the money.
How to effectively use a savings account
Have a goal
Having a goal in sight and a plan of how to get there is essential for motivation. Once you’ve decided how much you can afford to save set up a recurring transfer from your everyday account into your savings account a day or two after your pay hits your account.
Bank any extras
Throughout the year we often get extra income from various sources such as our tax return, work bonuses, overtime, selling items, etc. Try to resist the temptation to spend this money and instead use it to build up your emergency fund and savings.
Earn interest on your interest
Interest on most savings accounts is calculated daily based on your closing balance on that day, then paid into your account monthly –commonly known as compound interest. Essentially, the more you deposit into your account and the less you withdraw from it, the more interest you earn on your money.
What is a good interest rate?
A good rule to keep in mind with savings accounts is to look for a rate that is higher than the current inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. The current inflation rate at the time of posting is 1.8% If you aren’t earning interest above this amount then over time your money is as good as being hidden under your mattress.
Do I have to pay tax on interest?
Short answer: Yes
The amount of tax that you’ll have to pay on the interest you earn is determined by your overall taxable income bracket. The total income you earn each year (from all sources) determines the tax rate you must pay. The ATO’s tax rates for the 2017-18 financial year can be found here.
The interest you earn has to be declared on your annual income tax return. The ATO then matches this with the amount reported by your bank/s, and if there are any errors your tax return will be adjusted and fines may apply. So don’t forget to make a note of it when completing your tax!
So who has the best rate then?
I’ve put together a list of all current higher interest rates on the market currently in the spreadsheet below. There is even a second section in the workbook to help you calculate the interest you can make by changing funds or increasing monthly deposits. Have a play around with the figures.