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Tips for when comparing saving accounts
A savings account is an account at a financial institution where the money deposited earns an interest rate. It is a secure place to store money while receiving a return. Usually, the account is linked to a primary transaction or chequing account, so that the user can easily transfer money between the accounts. Some savings accounts have debit card access. The interest for your account is usually calculated monthly.
Pros of a savings account:
- Savings accounts are a safe investment
- Savings accounts are covered under the Government Guarantee
- Savings accounts are liquid and generally, you can withdraw your funds at any time
Cons of a savings account:
- Savings accounts typically require you not to spend your money to avoid, voiding your interest earnings
What is the interest rate on a savings account?
Interest rates vary between less than 1% to just over 3%, depending on the type of savings account get.
What’s the difference between a honeymoon and base interest rate?
A honeymoon or bonus interest rate is a promotional interest rate given to new customers to entice them to open a savings account, which is significantly higher than its standard base rate. These rates generally only last for three to six months before reverting to a lower, base interest rate.
A base interest rate is the standard interest rate that you will see after the honeymoon period is over (where applicable).
What types of savings accounts are available?
Not all savings accounts are made, so when you compare the options, consider the following options:
- Online saver accounts. These are savings accounts with online-only financial institutions. The lower overhead for the bank means higher interest rates and lower fees, as well as easy access. This is an ideal for those happy not to visit a branch.
- Bonus saver accounts. Some savings accounts offer a bonus interest rate for an introductory period if you fulfil a certain deposit or withdrawal amount. For the best deals, expect that the financial institution will likely require that you have both a checking and savings account with it.
- Intro rate saver. Some savings accounts offer honeymoon interest rates for an introductory period for switching from another financial institution. People that are interested in chasing the highest interest rates and do not mind changing banks every few months will find value in this account type.
- Long-term savings accounts. These types of savings accounts offer the highest interest rates without needing to switch banks every few months, like with the intro rate saver accounts above. This type of account is a great option for people interested in staying with the same bank and saving money over a longer period of time.
- Child savings accounts. Most parents want to shepherd their children’s financial wellbeing and a child savings account can be a great start. These accounts are usually fee free and offer high interest rates, however, they are generally limited to few or no withdrawals to receive them.
What differentiates one savings accounts from another?
Other options worth comparing, include:
- Savings accounts should generally not come with any fees associated with them. Most online accounts will not have fees, but some financial institutions will charge for in-person transactions at their branch locations.
- Linked accounts. Most savings accounts can be linked to a primary active account so that you can easily transfer money between the two accounts.
- Monthly deposit requirements. Some financial institutions will require a certain balance or monthly deposit.
- Frequency of withdrawals. Like the above point, most financial institutions will have a limit on the number of times you can withdraw money from your savings account while maintain your interest rate.
- Introductory savings interest rates. Some savings accounts with offer an introductory promotional/bonus interest rate period of around four months to entice new clients. When considering these accounts, be sure to consider the baseline interest rate once the honeymoon period ends.
Is a savings account better than a term deposit?
A term deposit is when you invest money for a specified period of time in exchange for a guaranteed rate of return. These term lengths can range from 30 days to 10 years and the interest can be paid at varying points depending on the term length and the bank’s conditions.
Savings accounts and term deposits are both safe investments that seem similar, but there are a few distinct differences, specifically with regards to interest rates, withdrawal capabilities, and bonus rates.
Interest rates for term deposits are fixed and generally increase with the term length of the deposit whereas savings accounts have variable interest rates that will change over the period of the account lifespan.
Unlike savings accounts, where your assets are liquid, term deposits lock away your investment for a designated period, meaning that you cannot access these funds until the term length is over. Otherwise you may void your interest earnings.