How do these accounts work?
When comparing savings accounts you will notice that with some, interest rates are tiered in accordance with the account balance. Most savings accounts apply the top bonus interest rate on balances under $250,000, and once you hit this balance size the interest rate drops dramatically.
How do I compare accounts for balances over $250,000
When you are shopping for a place to park a significant amount of savings, there are a few things worth considering.
- Interest rate. Compare the rates amongst a number of different savings account to find the one that pays the most back for your deposit of this size.
- Account conditions. Some savings accounts will require you to meet some conditions each month in order to earn interest.
- Interest calculation and payment. You can earn interest exponentially if you find an account that calculates daily and pays monthly. Look to make sure that interest payments are deposited into the account once a month, and that the calculation includes the principal combined with the paid interest.
- Terms. Accounts such as a term deposit or notice saver will give you the maximum rate for balances of over $250,000, but that will restrict your access to your savings. Make sure that if you choose one of these types of savings products, they are at terms that you can abide to.
- Penalties. Look at the details carefully, especially with term deposits, to understand how penalties will be applied if you make a withdrawal from the account.
Tips for earning interest on balances over $250,000
The government guarantee
The Australian government guarantees deposits of up to $250,000 in Australian banks. This means if you had a balance larger than this, the portion over $250,000 wouldn't be protected in the (unlikely) event the bank went under. You could consider splitting your balance up between more than one bank, to ensure all your money is protected by this bank guarantee scheme.
The account conditions
If you're looking for a safe place where you can set-and-forget your large balance, you might not like a savings account that has monthly account conditions. Look for one that doesn't require you to jump through too many hoops or, consider a term deposit instead as these have no monthly conditions to meet.
Interest rate tiers
If you're happy to meet some account conditions each month in order to get the highest bonus interest rate, you might find that you'll get a higher rate on a lower balance. Consider what the rate would be if you split your $250,000+ balance up between two different savings accounts, to take advantage of the higher rates.
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