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Getting past the gimmicks: Why interest rate isn’t everything in a savings account


A big interest rate for your savings looks great at a glance. But when you're choosing a new savings account, the ancient maxim applies – caveat emptor.

Sponsored by MyState Bank. From 12 October start a clean slate by opening a new Bonus Saver account and get a cracking 3.60%* p.a. max interest rate that's simple to earn. Just deposit $20 and make 5 eligible transactions per month.

Interest rates are sometimes shouted out as the be-all and end-all when it comes to long-term savings accounts.

But the truth is more complicated. You need your account to meet other saving considerations, too.

These are some of the other things to consider before you sign up for a savings account.

Conditions to qualify for the best rates

Next time you see an ad offering high interest rates on a savings account, make sure you pay attention to 4 little words – "terms and conditions apply".

Y'see, the advertised interest rate isn't necessarily available to every customer.

Sometimes there are stringent qualifiers in order to be eligible. Age limits, time limits, minimum deposits, balance limits and more can all apply.

We'll touch on some of these specifics below – but the good news is that not all providers have convoluted criteria.

For example, from 12 October the MyState's Bonus Saver Account offers up to 3.60% p.a. with just a $20 minimum deposit per month and 5 settled eligible Visa transactions on the linked account.

But it's important to remember that you should always look at this interest rate more closely, to make sure you're not being dazzled by a dud.

Introductory interest rates vs ongoing interest rates

Another important factor to consider is that the advertised rate is not always the permanent rate throughout the lifetime of your savings account.

Generally, it's an introductory rate that applies for a specific period of time – often 4 or 5 months.

After this period, you'll generally be switched to a variable rate. This is tied to the cash rate set by the RBA and it won't necessarily offer the guaranteed returns you're looking for.

And that leads to our next point…

Ongoing and base rates

So, introductory interest rates aren't forever. But how can you lock in the best deal for interest rates?

Well, on paper your best option is to look for a provider that offers a guaranteed base rate.

But this isn't necessarily competitive for a long-term period.

Ideally, your provider should also offer bonus ongoing rates in addition to their base rate, too.

These are usually achieved via a range of different qualifiers -- for example, depositing a minimum amount per month.

By opting for a financial provider with solid base rates and a good range of bonus ongoing rates, you'll be setting yourself up for success.

Age limits

Did you know that some long-term savings accounts come with an age limit attached?

Aside from being ageist, this presents many savers with a dilemma.

An age limit can mean that you're missing out on elevating your savings significantly before retirement.

The good news is that this isn't universal.

For example, the MyState Bonus Saver is one particular account that doesn't have an upper age limit.

Not everyone is at the start of their saving journey. So you should always investigate an account closely before signing up for one and make sure its features align with your needs.

Balance limits

Age isn't the only thing that can limit your interest outcomes.

In fact, you can actually have too much saved to benefit from the maximum interest rate!

For many financial institutions, this will kick in around the $100,000 mark. You'll still earn interest, of course – but it won't be at the same rate as previously.

This does vary by provider. As an example, the MyState Bonus Saver offers its best rate for balances up to $250k and is backed by the Financial Guarantee Scheme.

These are key considerations if you're bringing over savings from prior accounts.

Minimum deposits required

Most high-interest accounts require a minimum amount to be deposited each month.

Doing so is usually part of the prerequisites to ensure that you're earning the maximum possible interest.

But this may be easier said than done.

Particularly when you're younger and working casually, committing to these amounts can be tricky – if not outright impossible.

So before you opt for a savings account, make sure that you check whether you need to make a minimum number of deposits per month.

You'll also need to be clear on the specific dollar amount you need to reach and ensure that it's within your means. Otherwise you won't get the full benefit.

Ability to make withdrawals

One of the reasons you save is for a rainy day. So occasionally, you might need to dip into your reserves.

But when your savings are in a high-interest account, this can present a dilemma.

Many accounts either reduce or outright eliminate your extra interest when you make withdrawals.

This isn't always the case – for example, the MyState Bonus Saver allows unlimited withdrawals.

So before you sign up to a new savings account, make sure you check its withdrawal policy.

When it might be time to change accounts

Sometimes, accounts serve us well for a time, but not forever.

In fact, some of this article may have got your "savings sense" tingling.

You may even be reconsidering whether your current account is right for you.

You can compare a range of different accounts right here and see if there's one that suits your needs better.

Just make sure that you're weighing up all of these considerations.

And of course, everyone's circumstances are different. It's always worth consulting with a financial adviser before making any major decisions.

Start saving with MyState today

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Name Maximum Variable Rate p.a. Standard Variable Rate p.a. Intro Period Government Guarantee Monthly Max Rate Conditions
MyState Bank Bonus Saver Account
Maximum Variable Rate p.a.
Standard Variable Rate p.a.
Intro Period
Government Guarantee
Monthly Max Rate Conditions
  • Deposit $20
  • 5 debit card purchases
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*Includes bonus rate of 3.55% p.a. subject to change. Consider full T&Cs, eligibility criteria and TMD.

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