Australian savings account round-up
Where's the best place to put your money?
"Plant your savings and watch them grow", my mother used to say. This may have been possible when the RBA cash rate was higher through the 1990s and 2000s, but with the current rate stuck at 1.5%, it can be increasingly difficult to attain any significant growth from your savings. However, you can still get a healthy return if you know where to look. In this blog, I'll look at the real-life returns of various savings account products across Australia.
Basic savings accounts
While many of the big banks offer moderately attractive rates to new customers, the big numbers often only last for a few months, after which interest rates drop dramatically. For example, the best of the basic savings accounts across the Big Four is CBA's NetBank Saver, which offers a robust 2.55% for the first five months. However, after that period the rate drops to a measly 0.5%.
If you dropped $5,000 into this account and then saved a further $200 per month over 2 years (to a total of $9,800), you'd earn only $120 in interest. The equivalent products from the other big banks and their returns are shown below. None is particularly impressive. If your money is earning only half a percent interest annually, it can probably be working harder for you. Thankfully, all of the big banks offer better rates elsewhere.
|Bank||Introductory rate||Introductory period||Ongoing rate||2-year $9.8k investment return|
|Commonwealth Bank NetBank Saver||2.55%||5 months||0.5%||$120|
|Westpac eSaver||2.51%||5 months||0.5%||$119|
|NAB iSaver||2.55%||4 months||0.5%||$110|
|ANZ Online Saver||2.3%||3 months||0.5%||$97|
Term deposits are a traditional product designed for longer-term saving. They tend to be more attractive when interest rates are higher and offer guaranteed rates over a set term. Once your money is deposited, it is locked in for the full term. Due to the locked-in nature of term deposits and the inability to make monthly deposits, I won't be comparing term deposit returns to the other products discussed. However, for those who are curious, the two-year term deposit rates for the Big Four banks are listed below.
|24-month term deposit rate|
Withdrawal-restricted goal-based savings accounts
All of the Big Four banks also offer goal-based savings accounts. These provide a higher rate of interest ongoing, as long as you fulfil two conditions: make some sort of deposit every month and, in most cases, don't make any withdrawals. The exception here is Westpac, which allows you to make withdrawals as long as your balance at the end of the month is still higher than it was at the start. NAB offers the best deal here, with its 2.5% bonus rate resulting in a much more substantial $373 return for the same investment.
|Bonus rate||Minimum monthly investment required||2-year $9.8k investment return|
|NAB Reward Saver||2.5%||$1, no withdrawals||$373|
|ANZ Progress Saver||2.4%||$10, no withdrawals||$358|
|Westpac Life||2.3%||$1, increasing month-on-month balance||$342|
|Commonwealth Bank Goal Saver||1.65%||$200, no withdrawals||$244|
However, the drawbacks here are obvious. Not being able to make any withdrawals means that if you do dip into your savings, the interest drops dramatically (to 0.01% in some cases). For those looking for a flexible savings option, these conditions may be too restrictive. Fortunately, there are a handful of online-only banks offering an alternative solution.
Criteria-based savings accounts
ING, ME, AMP and UBank all offer similar ongoing bonus interest rates which have slightly less restrictive conditions. In general, if you also open a transaction account and do your day-to-day banking (depositing wages, debit card spending) with these banks, that's sufficient to unlock the high rates. There are no specific investment requirements here – once your wages are deposited, you are free to withdraw them or otherwise use them as you see fit. UBank offers the best rate of the four, with a chunky $429 return on our $9,800 2-year investment.
|Bonus rate||Monthly banking requirement||2-year $9.8k investment return|
|U Bank Savings + Transaction Accounts||2.87%||$200 paid into savings or transaction account||$429|
|ME Bank Online Savings + Everyday Transaction Accounts||2.85%||Make 1 debit card purchase per week||$419|
|ING Savings Maximiser + Orange Everyday Accounts||2.8%||$1,000 paid into transaction account. Make 5 debit card purchases.||$412|
|AMP Bett3r Save + Bett3r Pay Accounts||2.25%||$2,000 paid into transaction account.||$335|
Graham Cooke's Insights Blog examines issues affecting the Australian consumer. It appears regularly on finder.com.au.