Lesson 1: Few hacks and tricks of high interest savings accounts.
I am a recent graduate who lives at home with her parents. I just got my first full-time job and I’m an absolute novice when it comes finance. I’ve been with the same bank since kindergarten and I don’t have a credit card or any kind of credit history … at least, as far as I know. What am I doing writing about anything to do with money?
I can’t be the only one with no clue - everyone has to start somewhere. For me, I’m starting here. Maybe you will too. Maybe all you need is a refresher in some of the basics. Maybe you’re just sticking around because of my charismatic writing style. Whatever the reason, it’s back to basics we go. Starting with your savings account.
The Dollarmites were fantastic. They used to send around those little deposit books that made you feel all grown up, despite them having cartoons on the front. That account has stayed with me since my mum signed me up for it 17 years ago. I carried that abysmal interest rate (0.01%!) on my life savings up until I turned 18 and got a letter telling me I’d have to pay account fees now that I was an adult. Well, that woke me up. I went into my local branch, got upgraded to net banking and got myself a debit card, renewed my student status to avoid the fees and felt really good about my financial status. Like an adult.
But I did wrong. I didn’t realise it, but I could have saved a heap more if I’d just gone online and checkout out my options. It’s easy to look back with hindsight and berate 18-year-old-me for doing that, but I had fallen into the same trap so many Australians do. I had been with my bank for years already and my savings were quite impressive all things considered, or so I thought, so why go through the fuss of switching?
I’ll give you a little rundown of my fiscal history, just to prove how wrong I was. In 2009 I had $3,800 in my netbank account, sitting there doing nothing. I had no job and I had started university that year. Over the course of 3 years (from September 2009 up till September 2012, averaging out the account’s interest rate at 4% p.a. the first year, 4.5% the second and 3.5% the last), I would have saved $483.62 with interest. Pretty impressive, considering I didn’t do much in the way of earning it.
If I had switched to an account with just 1% p.a. more on interest each month, I’d have saved $613.59, a difference of $129.96. Over three years, that’s not a lot, but consider that the difference is over a quarter of the interest I did manage to earn. 27% extra in interest over 3 years, all for the time it takes to compare online.
If I had of started with $38,000, I would have lost out on $1,299.61 in just three years, over $400 a year! I could watch the Hobbit in 3D 18 times with that money …. not that I would, but it would be nice to have that option.
The savings grow when you factor in the deposits I made from my part time job over that same period. Without boring you with my bank statements, I ended those three years with an interest savings of around $820. If I had earned that 27% extra, that’s over $220 over 3 years. And that’s for three years of my life where I was earning a casual Kmart worker salary, going out with friends way more than I should have, buying textbooks and what have you (and by that I mean buying video games off eBay). Imagine if I had been on a steady, full-time worker wage with much less time (and therefore, cash) to waste.
So there you have it. Saving 101: choose a high interest rate savings account to maximise your interest earnings. There are a few hacks and tricks that’ll help you do that, but for now just know that a little forethought when choosing your savings account can go a long way in a short time. You might be able to shrug off that extra 1% now, but it could cost you hundreds in just a few years time.