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A high interest savings account gives you the chance to earn more interest on your savings by meeting a few simple account conditions. This could be depositing money each month or limiting your withdrawals, for example. Take a look at some of the latest high interest savings account deals for January 2021 below and learn how to pick the right one for you in this guide.
- Maximum rate: 3% p.a.
- Standard variable rate: 0.2% p.a.
- Monthly fees: $0
High interest savings accounts on Finder
What is a high interest savings account?
A high interest savings account is a savings account that pays a higher interest rate when certain conditions are met. Because it offers a higher interest rate than a typical savings account, there are usually a few conditions to meet to earn the high rate. For example you might be required to meet a minimum monthly deposit condition, or limit your withdrawals from the account. A regular savings account, in comparison, will offer a lower interest rate on your balance each month but there usually won't be account conditions to meet.
Savings account offer: Westpac Life (18-29 year olds only)If you’re between 18-29, you can earn a 3% p.a. variable rate each month you grow your balance (excl. interest) and make 5+ settled debit card purchases from your linked Westpac Choice account, up to a balance of $30,000.
How does a high interest savings account work?
Here's how you access your money, how interest is applied and the conditions you might need to meet with a high interest savings account.
How you access your savings
You generally link a high interest savings account to your everyday bank account, usually with the same bank. This allows you to easily move money back and forth from your savings account to your everyday bank account when needed. This is handy, as high interest savings accounts don't come with a debit card to access your money (but bank accounts do). Although you can't spend the money in your savings account using a debit card, you can still access it almost instantly by transferring it to your bank account and spending the money from there.
How you earn interest
High interest savings accounts will offer a bonus interest rate on top of the base interest rate each month that you meet the account conditions. This gives you the chance to earn extra interest each month. A standard savings account, in comparison, will usually only offer the standard base interest rate with no option to earn extra interest.
The money in your high interest savings account benefits from compound interest that is calculated daily and paid monthly. Compound interest allows you to earn interest on your interest, helping your money grow quicker.
For example, let's say your balance was $10,000 and you earned $100 in interest during the month. The following month, interest would be calculated on your full balance of $10,100 (that's your original balance plus the interest earned last month) so you'd earn even more interest the second month. So technically, you don't even need to deposit money regularly for your savings balance to grow.
What conditions you need to meet
As we said earlier, in exchange for a high interest rate on your savings there are usually a few account conditions you need to meet. This varies from bank to bank, however it often requires you to deposit a set amount of money each month and open an everyday bank account with the same bank. Some high interest savings accounts also require you to make a certain number of purchases from your linked everyday bank account each month.
Take a look at some popular high interest savings accounts and their account conditions to earn the bonus interest in the table below.
What are the fees and charges?
High interest savings accounts typically have no account keeping fees and no regular charges. The account is designed to help you save money, not get eaten away by fees. However, in order to access the money you'll need to link the savings account to an everyday spending or transaction account which might have fees and charges.
High interest savings account conditions to meet
|High interest savings account||Maximum variable rate p.a.||Conditions to meet|
|UBank USave Account||1.1% p.a.||Link to a UBank USpend and transfer at least $200 per month.|
|MyState Bank Bonus Saver||1.2% p.a.||Deposit at least $20 each month and make five or more Visa Debit card transactions from your linked MyState Bank transaction account.|
|ME Online Savings Account||1.2% p.a.||Link to a ME Everyday bank account and make a weekly tap & go purchase from the account.|
|Westpac Life Account||3% p.a.||For 18-29s only, you must grow your balance within the month by any amount, and make 5+ eligible debit card purchases from your linked Westpac Choice transaction account each month. This high rate is for balances under $30,000.|
|ING Savings Maximiser||1.35% p.a.||Link to an ING Orange Everyday Bank Account, deposit $1,000 a month and make 5+ card purchases a month.|
Benefits of a high interest savings account
- A higher interest rate helps your savings grow faster.
Compared to an everyday transaction account which usually pays no interest and a standard savings account which won't pay much interest, a high interest savings account can help you grow your savings faster.
- Your money is safe.
Your savings are protected by the Australian government under the government guarantee scheme. Most banks and financial institutions are included in the scheme, which means eligible deposits are insured up to $250,000 per person, per institution.
- You can access the money at any time.
The money in your high interest savings account is your money, and it's readily and easily available whenever you need it. Unlike a term deposit which locks your funds away, you can move the money from your high interest savings account into your everyday bank account to spend it within seconds of needing it.
- It's a good incentive to save.
Because you often need to deposit money regularly in order to earn the high interest rate, these accounts are a great incentive to save money. They can also be a good motivation to keep your money in the account earning interest, rather than spending it on day-to-day items and impulse purchases.
- There are no fees.
High interest savings accounts don't charge any account keeping fees and there are no fees to add money into, or move money out of, the account.
Tips and traps of a high interest savings account
Here are some tips to help you choose the right high interest savings account for you, and some traps to avoid.
🔥 Hot tip: How to always get a high interest rate
A lot of high interest savings accounts offer special bonus introductory rates for the first few months only. This is a way for the bank to entice you to open an account. For example, the Rabobank High Interest Savings Account offers a competitive 1.75% p.a. for the first 4 months, then it drops down to the standard variable rate of 0.3% p.a..
So you could open this account to get the high rate, then after the introductory period ends you can move your savings into another account with a different bank to take advantage of their high introductory rate. Rinse and repeat to ensure you're always getting a high rate. Just remember, these offers are for new customers only so you can only open each account and get the high rate once.
- Make sure you're comfortable with the account conditions. If you can't realistically meet the account conditions each month, you won't earn the high interest rate so it defeats the purpose of opening that account.
- Switch accounts, constantly. To ensure you are always earning the highest rate, you could continually switch savings accounts after the introductory period ends.
- Compare accounts regularly. Unlike some other financial products, savings accounts are constantly changing their rates. This means you might have the highest rate one month, but not necessarily the next.
- Look at the variable base rate too. Don't just look at the headline rate - the variable base rate is what you'll earn if you can't meet the account conditions one month, so make sure to check what this rate is too.
- Introductory offers are for limited times. If you open an account that offers a high introductory rate for a few months, don't forget that this rate will drop after the introductory period ends. It's a good idea to set yourself a reminder to compare accounts again after this period.
- The account conditions might be too difficult to meet. You can't look at the interest rate without considering the account conditions. Some high interest savings accounts will require you to deposit $2000 or more each month to earn the high rate, which may be difficult to meet if you're a casual worker, you work part time or you're in the gig economy.
- The linked transaction account might have fees. High interest savings accounts will often require you to also open a transaction account with the same bank, and this account might come with fees and charges.
How do I apply for a high interest savings account?
You can open a high interest savings account online in a matter of minutes. It's free and easy to do, and requires little effort or paperwork. Once you’ve clicked through to the bank's secure application page, you will typically need to provide:
- Your personal details such as full name and contact information
- Your tax file number
- Documents to verify your identity and age, like your drivers license or passport
Once you've finished the application form and the bank has verified your identity, your account will be opened and you're able to start transferring money into it and earning interest.
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