Changing your bank to take advantage of the bonus introductory interest rates can dramatically boost your savings, but there are some downsides you should be aware of.
Switching to a savings account with a higher interest rate can provide a huge boost to your savings power, especially when there are juicy bonus introductory rates on offer.
Unfortunately, there are also a few risks to be aware of when changing bank accounts and they can have a big impact on your bottom line. Let’s take a look at the pros and cons of constantly switching savings accounts to take advantage of bonus introductory interest rates, as well as how you can make your money work as hard as possible for you.
standard variable rate
High Interest Savings Account Offer
Introductory rate of 2.90% p.a. for 4 months, reverting to the standard rate of 1.30% p.a. Available on balances up to $5,000,000 and subject to approval above this balance.
- Maximum Rate: 2.90% p.a.
- Standard Variable Rate: 1.30% p.a.
- Introductory period: 4 months
- Monthly fees: $0.00
Reach your savings goal fast today with an introductory bonus savings account
The problems with switching
Before you decide to start switching between introductory savings accounts to maximise the interest rate, you need to be aware that there are several disadvantages to this approach. These include:
- Only available for new customers (that is, you've never held the account before)
Another common restriction with introductory rate accounts is that they are only for new customers. This will stop you from switching to a bank with which you already have an account, and will probably also mean that you will eventually run out of honeymoon rate accounts that you are eligible to open. A limit of one account per customer will also usually apply.
- Strict terms and conditions
Many banks impose a range of complex terms and conditions to their introductory bonus savings accounts. One of the most common restrictions is that you need to open another account with the same bank, which usually attracts a monthly fee, in order to qualify for the honeymoon rate. The fees payable on this account can often counteract the benefits of the higher rate. In some cases, the bank may require you to keep a savings account open for a specific time period, which is longer than the introductory period, and closing it early could result in a fee.
- Hidden fees, or fees associated with the linked bank account
You also need to be wary of any hidden fees attached to the new account you open. For example, you may be charged a fee for closing this account, or for making a withdrawal.
- Minimum balance requirements
Another issue you need to consider is whether your introductory bonus savings account has any balance restrictions. For example, as well as requiring a minimum deposit, the account may only apply the bonus rate to balances up to a certain level, usually $250,000.
- Deposit and withdrawal requirements
Some accounts include conditions which you must satisfy in order to earn the maximum interest rate. For example, you may have to deposit a minimum amount each month and not make any withdrawals.
- Remembering to switch
Many Australians simply get sucked in by the dollar signs attached to the introductory rate and then “set and forget”. When the bonus rate period ends and the standard variable rate applies, the banks know that a lot of customers simply forget to switch to a new account or simply can’t be bothered. Your funds will then only earn interest at the standard variable rate.
- Research required
The terms, conditions and fees that often apply to savings accounts mean that it’s not really possible to switch on a whim. Instead, you’ll need to put in some hard work to research the restrictions and fees that apply to each account, as getting slugged with an unexpected charge or interest rate cut can hurt your bank balance.
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Why might I regularly switch savings accounts?
The main advantage of regularly switching savings accounts is simple: you can always make sure that your savings are earning interest at the highest rate on offer. When a better rate than the one on your current account becomes available, you can close that account and open a new one to maximise your interest-earning power.
This is especially the case concerning introductory bonus savings accounts, which pay bonus interest on top of the standard variable rate for a fixed introductory period, such as three or four months. When the bonus rate period ends and your account reverts to the standard variable rate, you can simply move your funds over to another savings account with an attractive introductory rate offer – and keep doing so every time you reach the end of a bonus rate period.
The other big benefit of using these types of accounts is that you have easy access to your funds if you ever need to withdraw cash. Unlike term deposits, which require you to lock your money away for a fixed period to earn a high rate of interest, most online savings accounts make it easy for you to withdraw money when you need.
Who offers introductory bonus savings accounts?
Introductory bonus savings accounts, sometimes also called honeymoon saver accounts, are regularly offered by a wide range of Australian banks. One example is the St.George Maxi Saver, which offers a 3-month intro rate of 2.85% and then reverts back to a base rate of 0.80% p.a.
Another introductory rate account is the HSBC Serious Saver, which pays 3.00% interest for the first 4 months before reverting to a standard rate of 1.60% p.a. You also must not make any withdrawals to be eligible for this maximum rate.
Sam is a keen saver but is disappointed by the lack of returns available from most bank accounts because of low interest rates. After seeing an ad for a high-interest savings account with an attractive introductory rate, Sam decides to see how much extra interest he could earn “honeymoon rate hopping” compared to simply leaving the funds in his current account. The results of his comparison are below:
- Option A: Staying put. Sam decides to invest his $5,000 in a high-interest savings account that pays interest at 2.00% p.a. At the end of one year, Sam’s balance has grown to $5,101.
- Option B: Switching accounts. Sam decides to invest his money in three accounts over the course of the year to take advantage of their introductory bonus rates:
- Account 1 has a four-month introductory rate of 3.00% p.a.
- Account 2 has a four-month introductory rate of 3.00% p.a.
- Account 3 has a four-month introductory rate of 2.75% p.a.
So at the end of the 12 months of account hopping, Sam’s balance has grown to $5,146.47. That’s an extra $46 in interest over the course of a year, which doesn’t sound like a whole lot, but if Sam makes regular contributions to his savings during this time then the effects of compound interest can lead to a substantial boost to his savings.
Tips to maximise your savings power
While moving from bank to bank to maximise your savings does have its drawbacks, if you’re willing to spend a few hours reading the fine print it will help you build a bigger nest egg. Here are a few more tips to give your balance a boost:
- Consider the standard variable rate. Even though you are switching to take advantage of introductory rates, it’s also a good idea to consider the standard rate the account will revert to when the honeymoon period ends. This will ensure that if you forget to switch a few months down the track or can’t find another suitable offer, your money will continue to grow at a decent rate.
- Look beyond the “Big Four”. To find the best savings account interest rates you will have to be willing to look beyond the big players in Australia’s banking industry. Don’t be afraid to see what other financial institutions have to offer, even if it means “cheating” on your regular bank.
- Read the fine print. To be a successful rate hopper and avoid any unexpected fees and restrictions, you’ll need to be willing to commit a few hours of your time to pore through lengthy terms and conditions documents for different accounts. It’s boring, time-consuming work, but the results can be worth it.
- Be strong. Remember that the reason you’re switching is to maximise your savings, so don’t feel restricted by any sense of loyalty to your bank. Your current bank may even pull out all the stops to encourage you to stay, but unless they’re offering a better deal than you can find elsewhere, stick to your guns and look for the best value for your money.