How can I tell if a savings account pays compound interest?

Savings accounts in Australia pay compound interest. But to help you compare between types of products, you will want to first look at when interest is paid, and then where. Interest that is paid monthly into the savings account will be compounded. However, on some term deposits for example, you can choose to have monthly interest payments, but these are paid into your linked account, not added to your balance, meaning you earn simple interest.

If my savings account requires a minimum monthly deposit, will my earned interest count towards that?

In most instances no, the minimum monthly deposit requirement must be met with other money deposited in the account. For instance, if the account requires a deposit of $150 and you have a balance of $100,000, the interest deposited for the month will be $166.66. This usually will not count towards your minimum deposit, and you'll need to transfer money in from another external account to meet this requirement.

Will my interest earnings be taxed?

Interest you earn on your savings account is assessable income, and you need to declare it in your tax return regardless of whether any tax has been withheld. Your bank is only required to withhold tax if you haven't quoted your tax file number (TFN) - at 47% for Australian residents (45% for foreign residents) - and it isn't required to withhold anything if your total interest earned across the financial year is under $120. To avoid having tax withheld at the highest marginal rate, you should always include your tax file number (TFN) and exemption codes on your application.

How can I make the most out of the interest on my savings account?

To help grow your savings, regularly deposit money into the account and allow time for your savings to grow. The longer your money is in the savings account, the more money you'll earn.

How else can I earn compound interest?

Compounding can be found with a number of different financial products. One example is investments, including via your superannuation. Instead of earning interest, you earn compounded investment returns. This is why investing a small amount early on in life is so beneficial - it can grow to a lot more over time through the power of compounding.