Savings 102

Rates and Fees verified correct on October 22nd, 2016

Lesson 2: Learn the secret method of maximising your profit using the optimum savings model.nmoney-banking-savings

If you’re keeping up with me, you’ve seen the importance just a 1% p.a. increase to your interest rate can have on your savings account in our previous lesson . You can earn thousands more in just a couple of years if you take the time right now to find the highest interest savings account you can.

Usually, this means not just looking at that bank’s interest rate, but at the bonus interest earned on specific accounts too. Before we look at how best to leverage these bonus interest rates, let’s decode the jargon a bit:


  • Variable:
    Variable rates are subject to change over the course of your account’s lifetime. The changes are made due to flux in the economy and if the Reserve Bank of Australia (RBA) lowers or raises the industry benchmark. Not all banks change their interest rates at the same time, so some will tend to have higher/lower rates than others.
  • Standard:
    The standard variable rate is the base interest rate that an account has with no bonuses put on top. This is the minimum interest rate you can get with that account (unless rates are lowered).
  • Maximum:
    The maximum interest rate is the most you can get from the account, calculated by adding bonus interest to the standard variable rate. This rate can only be achieved by meeting the criteria for attaining that bonus interest rate.


  • Bonus Interest:
    If you meet a certain criteria, you might be awarded a bonus interest rate on top of your account’s standard one. The criteria ranges from being a new customer to loyalty bonuses for monthly deposits or having your transaction account with a specific bank.
  • Minimum Balance / Deposit:
    Few accounts require a set contribution (minimum deposit) in order to open them and others require that your funds never fall below a certain amount (minimum balance).
  • Account Fees:
    Many banks charge fees to keep account open and functioning. These fees are generally charged monthly and can be waived with some types of accounts like internet savings accounts or cash managements accounts that have over a certain amount in them or that receive a minimum monthly deposit.


  • Internet savings:
    These accounts don’t have any account fees and you can’t use the funds in them without transferring to a linked transaction account first.
  • Transaction:
    Transaction accounts are your everyday spending accounts, typically linked to a bank or debit card so that you can access your cash from ATMs, online or other forms of withdrawal access points.
  • Cash management:
    These accounts are almost a hybrid of transaction and internet savings accounts - so long as you have a sizeable bank account (typically at least AUD$5,000), you won’t pay account-keeping fees while enjoying a high interest rate and still being able to access your money through a debit/bank card, usually with free transactions as well.

Now that you’re up to speed on the lingo, let’s get on with the learning, shall we?

The optimum savings model

If you’re new to the finance game, then you’ve likely got all your money in the one account with the one bank. Likely, that bank is the one you signed up with first and you’ve stuck with them simply because you’re not bothered to / scared of / unwilling to change. There are advantages of what you’ve been doing - you only need one login/pin code or you just have to visit the one branch / website to get all your finances sorted. But really, the limitations far outweigh any benefits you’re gonna get that way.

If you’re serious about optimizing your interest earnings, you’re going to want to switch over to the Optimum Savings Model, right now. It’s not hard, won’t take too long and you can do it all sitting / standing / lying right where you are now.

Step 1: Research & compare

Find the account with the highest maximum variable rate p.a. (more than likely an internet savings account).

Step 2: Sign up

You’ll need a few personal details like your name, date of birth (D.O.B), address and tax file number (TFN) and you might want to download that bank’s smartphone app to keep up with your finances on the go.

You’ll want to port over as much of your savings as you’re willing to put away - ideally, you won’t be taking out of this new account too much as you can only access the funds via electronic transfers.

To get the most out of this account, we suggest you put as much of your weekly / fortnightly / monthly earnings into this high interest savings account as you can; the more money you have in the account earning interest, the more interest you earn. Some banks calculate interest daily, even if they only pay it out monthly, so the more cash you have in your account for longer, the more interest you could earn. You should leave only spending money in your transaction account so that the bulk of your money is earning interest in a high interest savings account.

Step 3: Schedule

Make sure you set yourself a reminder to switch over your account at the end of its introductory rate period. You can put it in your date book, on your calendar or set up a notification with your phone. Any method is good.

Step 4: Switch

Wait until that account’s introductory bonus interest rate is exhausted, typically 4 to 6 months in. That account’s interest rate will revert to the standard variable rate which can be over 1% p.a. lower than the maximum you’ve been enjoying for the past few months.

Head back to and pick the next highest maximum variable rate to open an account with. Transfer all the funds currently sitting in the account you created in step 3 and enjoy the continued high interest earnings caused by a bumped up interest rate.

Step 5: Rinse & repeat

You’ll be getting the best interest rates on the market and your savings could grow much faster as a result, but only if you’re diligent and persistent.

At first, the interest you earn may not seem like it’s making any sort of dent in the overall scheme of things, but wait it out. Once you’re into the thousands, tens of thousands and beyond, that 1% p.a. can mean thousands of dollars earned in just a few short years.

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