Do Australian banks allow you to direct debit from your savings account to pay regular bills?
In the age of online banking it’s easy to set up a direct debit from your transaction account to pay regular bills such as rent, private health insurance and utilities. But if you want to invest your money in a high-interest savings account to build a bigger balance, is it possible to set up a direct debit from your savings account?
In most cases, the answer is no. With the exception of some savings accounts are designed to help you save money, not to manage your everyday spending. However, interest-earning transaction accounts can offer the benefits of both worlds, allowing you to earn interest on your balance while also providing the flexibility of a transaction account.
Compare savings accounts that allow you to set up direct debit
Savings accounts and direct debits
The name “savings accounts” is a reliable indicator of what these types of accounts are designed for – helping you save money. The funds you deposit into your savings account earns interest at a rate much higher than an everyday transaction account, allowing your initial deposit to grow much bigger and as quickly as possible.
Setting up a direct debit from your savings account would be detrimental to your savings goals. It opens the possibility of regularly chipping away at your account balance. With this in mind, most banks don’t allow you to set up a direct debit from your high-interest savings account, and usually place other restrictions on how and when you can access your money.
If you want to withdraw any money from your account, you usually have to transfer the funds into a linked account with the same bank or another financial institution. Once the money arrives in the linked account it can then be used to pay your rent and other bills.
What is a direct debit?
Setting up a direct debit provides an easy and convenient way to manage your finances. When you set up a direct debit from your bank account, you give a third-party service provider permission to withdraw money from your account at set intervals.
Direct debits are used to pay ongoing bills. For example, you can set up a regular direct debit with your bank to make loan repayments, or set up a direct debit with your private health insurer to make premium payments.
Your direct debits can be fixed amounts for example $200 per week, or you can give the third-party merchant permission to deduct the exact amount of each bill. You can also schedule direct debits so that your money is debited on specific dates or at regular intervals.
Access to high-interest savings accounts
If you want to take advantage of the maximum interest rate offered by a high-interest savings account, you most likely need to be willing to accept limitations on how you can access your money. Most high-interest savings accounts don’t allow you to set up direct debits or make regular withdrawals, and some even have minimum monthly deposit requirements to encourage you to save.
While this means you may be able to achieve your savings goal in a shorter time frame, it can be inconvenient if you want fast and easy access to your money at all times.
However, there are some bank accounts that allow you to combine the flexibility of a transaction account with the interest-earning ability of a savings account, commonly referred to as interest-earning transaction accounts.
The case for interest-earning transaction accounts
Conventional transaction accounts don’t allow you to earn any interest on your balance. Instead, their main focus is on making it as easy as possible to manage your day-to-day spending, for example through ATM withdrawals, direct debits, BPAY and EFTPOS transactions and online transfers.
However, some Australian banks offer a different type of account known as an interest-earning transaction account. These accounts offer many of the same features as an ordinary transaction account, including the ability to set up direct debit payments, but they also allow you to earn interest on your account balance. They also typically charge minimal or no ongoing fees.
But opening an interest-earning transaction account does mean you may have to be willing to compromise on a few features. For example, these accounts do not come with interest rates as high as those on regular savings accounts, while they may also place limitations on the amount of transactions you can perform each month.
Interest-earning transaction accounts that allow direct debits
Below are some interest-earning transaction accounts that allow you to set up a direct debit.
| Account | Maximum interest rate | Features |
|---|---|---|
| ANZ Progress Saver | 1.81% p.a. |
|
| Bankwest Hero Transaction Account | 1.50% p.a. |
|
| IMB Cash Management Account | 1.20% p.a. |
|
| Bank of Queensland Bonus Interest Savings Account | 2.20% p.a. |
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| P&N Bank Hi Saver | 2.75% p.a. |
|
Common traps to avoid
One of the main things to be wary of with direct debits is that you are handing control over your regular payments to someone else. Make sure you trust the service provider with which you are setting up a direct debit before you give them access to your account.
Another trap to be wary of is if you don’t have sufficient funds in your account to cover the direct debit. When this happens you will incur dishonour or overdraft fees from your bank and from the service provider, so check the terms and conditions of the arrangement to be aware of the risks involved.
Some accounts may also offer a direct debit facility to customers, but using that facility may hurt your ability to earn interest on your balance. For example, while the ANZ Progress Saver allows direct debits, in order to earn the maximum interest rate each month you are not allowed to make any withdrawals – so you will only earn 0.01% p.a. interest in any month you make a withdrawal.
Finally, setting up a direct debit means that you will also run the risk of over-paying or being incorrectly charged for something. It’s a good idea to check the service provider’s bill regularly to ensure you’re not getting ripped off.
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Comparing interest-earning transaction accounts: what to look out for
If you’re shopping around for a transaction account that combines direct debit capability with the ability to earn interest, consider the following features:
The interest rate
While a transaction account will never offer interest at as high a rate as a savings account, it’s still important to compare the interest rates offered between providers. Even a small variation in the interest rate can make a big difference to the size of your account balance.
Account terms and conditions
Read the fine print to make sure you’re aware of any restrictions or conditions that apply to your account. For example, is there a limit on the number of withdrawals you can make? Do you need to deposit a minimum amount each month to earn interest?
Ongoing fees
Regular bank account fees can take a big chunk out of your savings balance, so check for any monthly or annual account-keeping fees that may apply.
Direct debit fees
Read the fine print to see if there are any fees associated with setting up a direct debit from your account. Will you be charged if you perform more than a specified number of direct debits each month? If there’s not enough money in your account to cover a direct debit, how much is the bank’s overdraft fee?
Account access
As well as direct debits, check to see whether the account allows you to make ATM withdrawals, EFTPOS and BPAY payments, and to transfer money online. Is there a limit on the number of transactions you can perform each month and if so, will you be charged a fee for any transactions made after you exceed this limit?
Online banking portal
Read reviews of the bank’s Internet banking portal and mobile banking app. You will use these services regularly to manage direct debits and access your finances, so it’s worth checking whether they’re convenient and easy to use.
Customer service
Finally, don’t forget to investigate a bank’s reputation for providing prompt and helpful customer service. Is support also available online, over the phone and via email if you ever need help?
These accounts can offer a convenient solution if you want to combine an attractive interest rate with easy access to your funds. Just make sure to compare interest-earning transaction accounts and consider a range of options before deciding on just one account.
