Here's how retirement savings accounts work and how to compare your options.
Retirement savings accounts are becoming increasingly rare, as the majority of Australians now open a superannuation account when they join the workforce. However, there are still some retirement savings accounts in the market, so this guide will outline how they work and how you can compare accounts.
How does a retirement savings account work?
A retirement savings account acts like a superannuation account however it's provided by a bank, building society, credit union or life insurance company. It's run in a similar way to a regular savings account and does not follow a trust structure, making it different from a superannuation fund.
Although they aren't superannuation accounts, these accounts are in line with superannuation regulations and its tax advantages. However with a retirement savings account even your tax-free portion can earn interest. Typically a retirement savings account awards a higher rate of interest in comparison to a regular savings account, as the purpose of the account is to help you save for retirement. Once you've met a condition of release or reach your preservation age, you can start drawing down on your fund.
How do I compare retirement savings accounts?
Comparing retirement savings accounts is similar to comparing regular bank accounts. You look for the following:
Competitive interest rate
A higher rate of interest will help your retirement savings work harder. This is especially true if it's compounded daily. However even with a high interest rate on your retirement savings account, you'll likely earn better returns with a superannuation fund that is actively investing your balance.
To ensure that every dollar you deposit helps you save for your retirement, you should look for a retirement savings account that changes no account keeping fees and no annual fees.
Given the widespread use of the Internet, your retirement savings account provider should let you view your account details online or via a mobile banking app. Some service providers offer online tools that allow users to search for their lost super, which they can then transfer to their new accounts.
What are the pros and cons of using a retirement savings account?
- Good way to save for retirement. A retirement savings account is a good way to start saving for retirement, given that you stand to earn higher returns when compared to conventional bank accounts. You can also choose how much you get paid and how often through flexible pension payment alternatives.
- Tax advantages. A retirement savings account offers the same tax advantages as a superannuation account.
- No fees. Most retirement savings accounts do not charge any joining fees, ongoing account keeping fees, administration fees and commissions.
- Not that common anymore. Retirement savings accounts were initially introduced as a way to help Australians save for retirement, before everyone had a superannuation account. These accounts are becoming increasingly more redundant as the superannuation system matures.
Tips for using a retirement savings account
Read the terms and conditions
Make sure you go through the product disclosure statement (PDS) before signing up for any retirement savings account. The summary page of this document should give you a clear indication of any applicable fees and charges.
Compare your options
Before opening a retirement savings account, compare similar accounts in the market to ensure you're finding the most suitable account for your needs. It's also important to compare these accounts against standard superannuation accounts. In particular, you can gauge how competitive the interest rate on your retirement savings account is when compared to the sorts of returns super funds typically deliver to their members. It is worth noting, however, that the return on funds invested into a standard super account is in no way guaranteed. Ultimately, it's up to you to decide the which strategy works best for you and your retirement plans.
Did you have these questions?
Do I have to pay any fees to make the switch?
This depends on the service provider you chose, and some may require that you pay a switch fee.
Can I apply for a retirement savings account online, and if so, how long does the process take?
Yes, you can submit an online application. If you have the required information close by, you can complete the application in minutes.
I’ve just changed my job. Can I continue using my existing superannuation account?
Yes, you can. You simply have to notify your new employer of your choice.