Open an account that offers high interest on balances exceeding $500,000, but not before you pay attention to a few important aspects.
You might have just sold your home, you may have run into unbelievably good fortune, or you might want to make better use of funds in your retirement account. In any such scenario, you can consider opening a savings account or a term deposit where the maximum interest rate applies on balances in excess of $500,000.
How does such an account work?
Many Australian financial institutions provide savings accounts and term deposits that come with tiered interest rates through which higher balances earn better interest. Some such accounts offer the highest interest rate when balances exceed $500,000.
Accounts such as these can come with minimum opening and ongoing balance requirements, and if your account balance falls below $500,000 you would stand to earn lesser in the form of interest.
What helps in particular is that most providers of savings accounts give you the about to move funds in and out of your account using online and phone banking, and some even give you the ability to use your account for bill payments.
You can find high interest savings accounts that offer competitive variable interest rates on balances up to $250,000. View and compare accounts in our guide to getting the most out of your savings for balances up to $250,000 and more.
How do I compare accounts where the maximum rate applies over $500,000?
Comparing accounts where the maximum rate applies over $500,000 is not difficult as long as you know what to look for, and the following aspects require your attention.
- Interest rate. Know that not all such accounts come with the same interest rate. Given a sum as substantial as $500,000, even a small difference in percentage can have a telling effect on the eventual dollar value, especially if you plan to keep the money in the account for a significant time period.
- Bonus interest. Some such accounts offer new account holders a promotional interest rate that stays in place for the first few months. With balances in excess of $500,000 this bonus rate can lead to noticeable earnings.
- Calculation and payment of interest. You stand to earn interest faster with an account that calculates interest on an everyday basis and pays it monthly. Look for accounts that pay interest once a month, and ones that offer interest on the entire balance, not just the principal amount.
- Access to funds. If you want access to funds in your account, you’re better off opening a savings account. If you don’t mind locking away the funds for a given time period, opening a term deposit may well be a better idea.
- Fees and penalties. Find out if the account you wish to open attracts any account opening or ongoing account keeping fees. With term deposits, pay particular attention to the penalty you might have to pay in case you need to access your funds before the deposit matures.
What are the pros and cons to having a $500,000 balance in one account?
- Earn maximum interest. When you account balance is $500,000 or more, you stand to earn the highest interest the account offers. With a savings account, you will earn interest even if your account’s balance falls below the $500,000 mark.
- Flexibility. With a term deposit, you can choose to put your money away for as long as you’re comfortable. With a savings account, you get easy access to funds in your account.
- For the risk averse. When compared to other investment options like the share market or real estate, these investments come with much lesser risk, and many view them as near risk free investments.
- Government Guarantee. The Australian Government Guarantee Scheme for Large Deposits offers protection on deposit balances totalling up to $250,000 per customer, per financial institution. This is only half of the $500,000 you wish to open an account with.
- Restrictions. In case you open a term deposit, a penalty might apply if you wish to access funds before the term expires, and you might not get the money as quickly as you would like. Not being able to access money quickly enough can also be a problem if your savings are part of investment funds.
What are the risks?
The Australian Government Guarantee Scheme would not offer protection to the entire balance in your account, and in the event of any financial eventuality you would stand to receive no more than $250,000 for your combined deposits in a single financial institution.
With a savings account, find out how much interest you’ll earn if your balance falls below $500,000. This is particularly important if you feel that your balance won’t remain more than $500,000 for long.
Frequently asked questions
Do I have to pay taxes on interest earned?
Yes. Any money you make through interest qualifies as income on your tax forms. It helps if you provide your financial institution your Tax File Number (TFN).
Can I use my SMSF to open such an account?
Some financial institutions give you the ability to open such accounts using your SMSF. Some even offer such accounts for businesses.
Can I use such an account to save for retirement?
Yes, you can, and you get to benefit by knowing that the money in the account will keep earning interest for as long as its stays there.