Savings Accounts

Whether you’re saving for something specific or simply saving for a rainy day, building up a substantial savings fund can have all sorts of benefits. With money tucked away, you have it there should you need it, which means you don’t need to rely on credit if something bad happens. What would happen if tomorrow your boiler explodes, your tooth cracks, or the dog swallows something it shouldn’t? If you don’t have savings set aside to cover those types of emergencies, you might have to apply for a loan or use your credit card, which can both come at a significant cost.

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A GUIDE TO

Savings Accounts

By squirreling away money, you have peace of mind that it’s there should you need it. But, there are benefits to active saving besides having an emergency fund. When you actively save, you stop spending money on stuff you don’t need. Instead, you put that money aside to do something fun, something good, something worthwhile. Whether that’s buying a house or going on holiday, your money can so much further, and do so much more than you think.

So, how do you save? While there are lots of ways to save, you may consider using a savings account as a starting point. With a number of different types of savings accounts out there, you can choose the one that suits you best. Whether that means boosting your savings early on with an introductory rate, or locking your money away for the long term, you can find the savings account that gives you the tools you need to reach your savings goals, with a little help from Mate, of course.

Savings Accounts 101

What is a savings account exactly?

Unlike transaction accounts and everyday accounts, which are designed to take care of your daily financial needs by offering easy access to your money, a savings account works to assist you in saving. It may do this by limiting access to your funds, while allowing you to earn interest on the money you have stashed away.

The type of savings account you choose will determine how you use it. If you choose an online savings account, for example, you will deposit money into the account when you can to build your savings over time. Alternatively, if you opt for a term investment, you will deposit a lump sum when you open the account, and then leave it there to grow.

In most cases, an interest rate is applied to the balance held within the account daily. The interest will then be paid into the savings account or a separate account at predetermined intervals. By having the interest paid back into the savings account, this could allow you to benefit from compound interest, which basically means you continue to earn interest on both the funds you deposit, plus the interest you earn on those funds.

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Benefits of Saving

Create Good Habits

Being good with money isn’t something that comes naturally for all of us. It’s something we need to work on. While spending is oh-so easy, saving can be oh-so hard. But, it’s something you can improve on with practise. By learning how not to spend money on stuff you don’t need, you also learn how to save. This can be a habit that sets you up for the rest of your life, providing you access to money when you need it, while letting you indulge in the nicer things in life as well.

Pass On Good Habits

Kids learn from their parents. Whether you’re talking table manners or your ability to save, chances are, what you do, your kids will do too. So, if you learn how to spend less and save more, your kids should pick up those habits, allowing them to develop a better relationship with money.

Invest In Something Special

By tucking away money that you would otherwise spend on something meaningless, you can build up a fund to pay for something special. This could be an overseas getaway, your dream wedding, or a campervan that will let you and your kids travel Australia.

Create A Good Impression

It’s not just your kids that will pick up on your saving habits, lenders will too. When you apply for a home loan, one of the big things lenders look at is your ability to save. If you can prove you can save, it will not only help you build up the deposit you need to buy your first home, it will also create a good impression for potential lenders when you apply for a home loan.

Build A Rainy Day Fund

You never know when things will go sideways. And while not all emergencies cost money, all too many of them do. Cars break down, cats get sick, errant children break their legs riding mopeds in Bali without travel insurance. With savings set aside, you can cover those costs without having to access credit, which can cost all sorts in fees and interest.

Make Money Back

With the right savings account, you can make your money work for you. When you set money aside in savings, you not only build a fund that’s there when you need it, you can also earn interest that can help those savings grow.

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What is compound interest?

On an account that earns compound interest, you will earn interest not just on the money you deposit, you will also earn interest on the accumulated interest that initial deposit earns. You earn interest on the money you deposit, and on the interest you have already earned – so you earn interest on interest. An example of a savings account that earns compound interest is an online savings account.

On the other hand, you have simple interest. With simple interest, interest is paid at the end of a specified term. An example of a savings vehicle that earns simple interest is a term deposit.

Compound Interest In Action

Say you invest $10,000 at 5% per year for five years.

If you opt for an account that pays interest at the end of the term, you would earn $2,500 in simple interest after five years. This would give you a total of $12,500.

If you opt for an account that has interest calculated and added monthly, you would earn $2,834 in compound interest after five years. This would give you a total of $12,834.

Types of Savings Accounts

Choosing the right type of savings account means knowing what’s out there, and how each account works. Here’s the lowdown on some of the different types of savings accounts, and how they operate.

Online Savings Accounts

Online savings accounts are popular because they are just so easy to use. Typically linked to an everyday account – but not always – these accounts allow you access to your account 24/7 via online banking, making it easy to transfer funds into your savings whenever it suits you.

You may find online savings accounts offer higher interest rates because they only exist online, which means providers have fewer overheads to cover. However, some providers may have branches that you can visit as well.

Some online savings accounts limit the number of transactions you can make, encouraging you to leave your money where it is so it can grow through compound interest. You may also find online savings accounts that reward you with higher interest if you make regular deposits into the account.

Introductory Bonus Savings Accounts

Offered exclusively to new accountholders, these savings accounts offer a higher introductory interest rate over a specified period of time, usually between three and six months. At the end of that period, the interest earned on the account will revert to the standard rate.

These types of accounts can work well for those with a short-term savings goal, or those who don’t mind switching their savings every few months to make the most of different introductory offers.

Bonus Saver Accounts

Offering an incentive to keep on saving, bonus saver accounts allow accountholders to earn a higher interest rate as long as they meet certain rules and conditions set out by the provider. This usually means depositing a certain amount of money into the account each month, and limiting the number of withdrawals made.

If you don’t meet the conditions one month, your balance will accrue interest at the standard rate rather than the bonus rate. But, you can start fresh the following month to take advantage of the bonus rate moving forward, as long as you stick to the rules. This can make these accounts a good option for those who need an incentive to keep saving, and who want to reach a certain savings goal.

 

High Interest Savings Accounts

These accounts focus on interest, allowing accountholders to build their savings faster. Typically, the best rates are found in online-only accounts, but it’s always a good idea to shop around for the best deal. Especially as there are usually conditions that apply.

To access these accounts, you may need to maintain a minimum balance, or make monthly deposits. You may be limited in the number of transactions you can make, and in some cases, you may need up to three business days notice to transfer the funds out of your account.

Kids’ Savings Accounts

Learning good financial habits starts early – and you can help your kids develop a good relationship with money by setting them up with their own savings account. Kids’ savings accounts offer a way for kids to save money, and to see that money grow.

To apply, your child will typically have to be under 18, but you may still retain full control over the account until they reach 16. Interest rates range from great to the not-so-great, so compare your options to find the best one. You may find some accounts offer bonus rates for meeting certain conditions, but make sure they are actually achievable for your child.

Retirement Accounts

On the other end of the scale, you have retirement accounts. These accounts are designed for over 55s who receive pension benefits. While they can allow accountholders to save, paying interest on their balance in accordance with the Australian tax policies, they can also act as a transaction account, making it easier to manage money day-to-day.

 

Christmas Accounts

Saving for Christmas often takes a backseat when there are other costs to manage. While you may mean to put cash away throughout the year, before you know it, December rolls around and you need to conjure up enough cash to cover all those Christmas expenses. If you find yourself in this situation year after year, a Christmas account could help.

Allowing you to make payments into the account throughout the year, a Christmas account locks away those funds until Christmas comes. Bear in mind though, these accounts may not offer as much interest as other savings account options.

Term Deposits

As a fixed rate savings account, a term deposit allows you to lock in your money for a specified period of time, during which, you will earn interest on your savings at a given rate. If you know you will not need access to your money for a certain period, this could allow you to earn more in interest on your locked-away funds.

While this type of account can work well for those who need an incentive not to dip into their savings, it is worth bearing in mind that if you do need access to your money, you will likely pay a penalty, and may lose out on a higher interest rate.

Saving Account Features

When comparing savings accounts, it’s important to look at the small print – and actually understand it. Keep an eye out for these features as you compare your options, as they may provide a better way for you to save, or limit the way you access your money.

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Savings Account Features

Bonus Interest Rate

With a bonus interest rate, you will earn more interest on your balance as long as you meet certain conditions, such as making a minimum deposit each month, or limiting your withdrawals. Make sure you can actually meet these conditions or you will earn a much lower rate of interest on your savings.

Promotional Interest Rate

Great for short-term savings goals, this offers a higher rate of interest over an introductory period. If you want to keep the account over the long term, make sure the rate the account reverts to still offers a good return on your savings.

Minimum Opening Deposit

To open some savings accounts, you need a certain amount in savings to start with. While this may seem like a strange idea, these accounts can offer higher interest rates to those that meet their minimum opening deposit requirements.

Automatic Salary Deposits

Making it easier to save, some savings accounts allows you to automatically transfer a portion of your income directly to your savings account.

Accessing Funds

While some online savings accounts offer phone banking and branch access to those who need it, others will be strictly online only. If you prefer talking to a real live person, check that’s an option before you apply.

ATM Access

Most savings accounts are set up to discourage you from accessing your money, which means no ATM access. If you don’t want to transfer your savings to your everyday account to access them via ATM, look for a savings account that offers ATM access.

Age Restrictions

Some savings accounts stipulate certain age restrictions. While some accounts are only for those aged 18 or over, kids’ accounts are typically for those aged 18 and under.

Savings Account Fees

When you are trying to save, the last thing you want to do is pay out fees for the privilege. Luckily, there are lots of savings accounts that offer a fee-free way to save. However, you may find there are certain downsides to these options, such as having to maintain a transaction account with the provider, for which you will have to pay a fee for.

When comparing your options, keep an eye out for these fees and avoid them if possible. While they are usually small amounts, they can add up, chipping away at your savings.

Ongoing Account Fees

This fee is charged for keeping the account open and active.

Monthly Statement Fees

This fee is charged for providing paper statements. You can usually opt-out of paper statements to receive them online instead for free.

Branch Deposit Fees

This fee is charged when you deposit money in-branch instead of online.

Electronic Transaction Fees

This fee is charged when you transfer money.

ATM Fees

This fee is charged when you withdraw money from your savings at an ATM.

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paying tax on savings

Paying Tax on Savings

While there is no tax applied to the money you keep in your savings account, you may be expected to pay tax on the interest you earn. Interest is considered a form of income, which means the ATO requires you to declare it when lodging your tax return. When it comes to kids’ savings accounts, these may be treated differently for tax purposes.

It may be a good idea to speak to a professional to find out more about how interest on your savings accounts is taxed to ensure you stay on the right side of the ATO.

Protecting Your Savings

What kind of protection can you expect on your savings? While you may be expected to pay tax on your interest earnings, it is nice to know that the Australian government gives something back by providing a guarantee on your savings as long as your account is held by an Authorised Deposit-taking Institution (ADI).

Regulated by the Australian Prudential Regulation Authority (APRA), ADIs can offer a safer way to save, providing a government guarantee on deposits of up to $250,000. You can check whether your provider is an ADI by searching APRA's list of Authorised Deposit-taking Institutions.

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HOW TO COMPARE

Comparing Savings Accounts

With a better understanding of what savings accounts can offer, you can now put all that knowledge to good use as you compare the options available. So, what should you look for as you compare savings accounts? That starts with deciding what you want to achieve from your savings. As soon as you understand what you want to get out of saving, choosing the right account becomes a hell of a lot easier.

Deciding What You Want To Achieve

We’ve already gone over the various benefits to saving, so that should give you a good starting point in deciding what you want to achieve. Thinking about what you want to save for should help you get a better idea not only of the type of savings account you need, but the features you should look for, and what you will need to do to reach your goals.

  • Save For A Rainy Day

    If you want to build up a rainy day fund, you need to be able to add to the account when needed, but still be able to access your funds at short notice. If you know you will be adding a certain amount to the account every month, a bonus saver account could be a good option. But, if your payments will be more sporadic, a standard online savings account could be your best bet.

  • Save For A House

    If you’re saving a deposit for a house, you may want an account that provides incentive not to withdraw the funds you pay in. Choosing an account that rewards frequent payments and penalises withdrawals could offer the incentive you need to keep adding to your savings, to then allow them to grow over time.

  • Save For Something Special

    Whether you’re taking a round-the-world trip or planning to propose, you could build up the money you need beforehand using an introductory bonus saver. Designed to reward savings over the short-term, these accounts allow you to park your savings in them for a few months to enjoy a higher in interest. Another option could be an online savings account that rewards frequent payments, but if you think you will need access to your money here and there – for example, to pay for flights or accommodation as you book them – make sure you will not be penalised for this.

  • Save To Maximise Your Return

    If you’re saving for the sake of saving, and simply want to get the most back on your funds, a high interest savings account or term deposit could allow you to do this. Take into account the various conditions on these accounts, and make sure they work for you, not against you.

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What To Look For In A Savings Account

Just like any other financial product, savings accounts can vary in their offering, making it a very good idea to compare the options out there.

In terms of a basic savings account, here’s what you would typically expect to find:

  • A base interest rate that is applied to your daily balance.
  • No ongoing service fees or transaction charges.
  • No compulsory deposit amounts.
  • No limit on the number of withdrawals you can make.
  • Access to the account online and in a branch.

But, while basic savings accounts will work for some savers, they may not offer everything you need. When comparing savings accounts, think about the following factors and how they may affect the way you use the account.

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Interest

You want to earn something back on your savings, obviously, but the amount you earn in interest may depend on what you are willing to put in – or give up. You may find higher interest rates on savings accounts that require a certain amount in deposits, or those that limit withdrawals. Think about how you will use the account to choose the one that will offer the best return on your savings.

Account Fees

You’ll usually find most savings accounts don’t charge a monthly account fee, but there may be other fees that apply to make a deposit in-branch, to withdraw funds at an ATM, or even to receive paper statements. Savings accounts may also actively discourage withdrawals from the account by charging a fee, or reducing the interest applied for that month. Again, choosing the right option means either choosing an account with no fees, or avoiding fees whenever possible.

Flexibility

If you’re looking for a savings account that is flexible, you may have to pay for that flexibility with lower interest rates. If you know you will not meet a minimum deposit amount each month, or if you know you will want to withdraw money whenever, wherever, you may find the accounts that allow for this offer less in return in terms of interest.

Access To Funds

If you’re looking for a savings account that is flexible, you may have to pay for that flexibility with lower interest rates. If you know you will not meet a minimum deposit amount each month, or if you know you will want to withdraw money whenever, wherever, you may find the accounts that allow for this offer less in return in terms of interest.

A Linked Transaction Account

With a linked transaction account, transferring money in and out of your savings account becomes so much easier. You will usually find most savings accounts offer a linked transaction account, allowing you to use it should you need it. However, some providers require you to have a linked transaction account, which may not be ideal, especially as many of them charge fees.

Tracking & Management

Choosing a savings account that offers online account access is great for those who want to manage their savings more efficiently, while also tracking their funds to watch their progress. Accessing your savings account online may also allow you to save on fees, for example, transferring funds electronically is usually free, while there may be a fee for going into a branch or using an ATM.

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Your Checklist For Comparing Savings Accounts

When using Mate to compare savings accounts, here are some questions you can ask yourself to help narrow your search.

  • How much interest does the account offer?
  • Do you have to abide by any conditions to receive this rate?
  • If there is a bonus introductory rate, how long does it last and what rate will it revert to?
  • Do you need to deposit a certain amount in the account on opening, or at regular intervals?
  • Do you need to keep a minimum amount in the account?
  • Does the account penalise withdrawals?
  • Do you have to pay any ongoing fees?
  • Will you pay out on other fees for activities you will do regularly?
  • Do you need a linked transaction account, and if you do, how much does it charge in fees?
rewards credit card

Applying for a savings account

Using Mate, you’ve now narrowed your search to find the perfect savings account for your needs. What happens next?

Setting Up A Savings Account

Like most accounts these days, savings accounts make it easy to sign up. With online application options, all you need to do is click to apply when you find the account you want. Most providers will ask you to provide some information, which usually won’t take longer than five minutes. Of course, it’s still a good idea to take your time, making sure to read all the small print as you go.

Depending on the account you choose, you may need to transfer a certain amount to get started. If the account requires a certain deposit amount each month, it could help to set up an automatic transfer. Even if it isn’t a requirement, setting up an automatic deposit into the account could seriously help your savings goals.

From there, it’s simply a matter of tracking your account and making sure you abide by all its conditions. Over time, it can be a good idea to compare your savings account with what’s currently offered elsewhere in the market to make sure it’s still your most rewarding option. Don’t worry, Mate will be here to make that task as painless as possible.

How To Save More

Want to boost your savings? There are plenty of ways you can increase your savings efforts, it just depends on how creative you’re willing to get, or what you’re willing to do without. Here are some ways you can spend less and save more – although we know not all options may be to your taste.

  • 1
    Use a change jar

    An oldie but a goodie. Put your spare change in a change jar, and you might be surprised how quickly it stacks up. Add that amount to your savings account every so often and watch it grow.

  • 2
    Create a budget

    Knowing how you spend your money can help you save. Create a budget over a month or so to track your spending and see where you can cut back. There are heaps of budgeting tools out there that can make this task easier, so look around to see what might work for you.

  • 3
    Set up an automatic payment

    As we mentioned in the previous section, setting up automatic repayments into your savings account can help you save without you having to think about it. Consider setting up the payment after payday to pay out an affordable percentage of your wages.

  • 4
    Cut down on small treats

    Whether that means giving up your daily doughnut or cancelling your trashy magazine subscription, cutting back on small indulgences can add up over the long term. Of course, it’s not a good idea to cut back on everything that brings you joy, or you’ll likely thrown in the savings towel altogether.

  • 5
    Write a shopping list

    Instead of wandering the supermarket aisles picking up this and that, focus your shopping trip with a list, so you only buy what you actually need. Also, don’t shop hungry – it’s a recipe for disaster and will result in a trolley full of junky foods.

  • 6
    Cook in bulk

    Not only can buying in bulk save you money, cooking in bulk can as well. When you cook in bulk, you can portion out the leftovers to save in your fridge or freezer. Taking those leftovers to work could save on expensive lunches – and with something edible in the freezer, you are less likely to order takeout when you get home tired.

  • 7
    Only buy once

    Ever heard of false economy? While you might think you save money buying cheap stuff, you may end up spending more in the long run when that item breaks and you have to replace it.

  • 8
    Make your own presents

    While this will not be everyone’s cup of tea, consider making presents instead of buying them. Showing that you spent time and effort making someone a present might even make up for the fact that it looks kind of shoddy.

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Savings vs. Paying Off Debt

While we have now covered pretty much all the important stuff there is to know about saving, there is one factor we haven’t really discussed: debt. Should you save if you have debt to pay off? This is a tricky one, and will depend on the type of debt you have, how much you owe, and the interest you are paying on it.

If you have a heap of credit card debt, chances are, the interest being applied to that debt is pretty steep indeed. Even on an standard credit card, purchase rates average out at 17% p.a. If you think about the fact that your savings are earning maybe around 3% p.a., even taking compound interest into account, you may be better off clearing your credit card before you start focussing on savings.

On the other hand, if you have debt in the form of a home loan, building up your savings as you pay off your mortgage could be a good idea. With that being said, it could also be worth paying more into your mortgage, using an offset account to reduce the amount you’re paying in interest on your home loan.

At Mate, we know that everyone’s situation is different. We are not here to provide advice on what you should do with your money. What we do is make it easy for you to compare your options. If you think you’d benefit from financial advice regarding your savings – or even your debt – speak to a professional to find out how you can make the most of your money according to your own personal circumstances.

Once you know what you need and what you want to achieve, we’ve got your back. We can help you compare your options to make it easy to find the one that best suits you. Well, what are you waiting for? Those savings aren’t going to save themselves.

Time to get started?

Check out the extensive range of savings account here on Mate, and put all your new-found knowledge to good use when comparing them. You’ll have the perfect account – for you – in your hands in no time.