Banks are not known for their generosity when it comes to paying interest, but it's always better to earn a little than nothing at all.
When your cash sits idle, its value slides backwards as the rate of inflation moves inexorably forward. The value of the dollar, that is, is forever falling behind the rising cost of living.
Which is why you should put any money that's not already committed to bills and other ongoing costs of living in a savings account that at least make an effort to let your money grow.
Rates on "high-interest" accounts are down in line with record low cash rates (or the official interest rate set by the RBA – now at 0.75%), but they're still a better option than letting your money languish in stingy online savings accounts from one of the big banks.
When we last covered this subject in November 2018, the big four banks were offering a measly 0.5% standard rate. Now that rate has slipped to a infinitesimal 0.1%.
When we last covered this subject in November 2018, the big four banks (NAB, Westpac, ANZ and CBA) were all offering a measly 0.5% standard rate on their online savings accounts.
Now that rate has slipped to a infinitesimal 0.1%! (That's one-tenth of one percent, by the way.)
While all of these accounts try to lure you in with teaser introductory rates, don't take the bait. They expire after a few months. It's much more financially savvy to link your transaction account to one of the best high-interest accounts we highlight below, or use one of the big banks' bonus saver accounts.
None of these accounts will leave you rolling in clover, but why accept a cheapskate interest rate when you don't have to?
Unfortunately there's been interest rate slippage in the better accounts as well. The best savings rate we found in November 2018 was 2.20%. Now the best in class has slipped to 1.65%, but that beats 0.1% any day of the week.
How to make your savings count
- The best high-interest accounts give you a much better return than one of the big banks' transaction or savings accounts.
- If you have a home loan, a 100% offset account is the best place for your savings.
- If you have a credit card debt, using a low-interest credit card and paying it off should be your first priority.
A little extra interest can go a long way in the long run.
With help from the data gurus at Mozo, we outline the best of the best – while acknowledging that it would be nice if banks found it in their hearts to make these rates a whole lot higher.
Best high-interest accounts
(Updated 18 November 2019)
- Bank of Sydney BOS Saver – 1.65%
- Move Bank Express Saver – 1.5%
- Southern Cross Credit Union Star Saver – 1.5%
- AMP Saver Account – 1.4%
- Easy Street Easy Saver – 1.4%.
- 86 400 Save Account – 2.25% (0.4% standard rate). Bonus rate condition: Deposit at least $1000 to either Pay or Save account from an external source each month.
- My State Bank Bonus Saver – 2.25% (0.55% standard rate). Bonus rate condition: At least $20 is deposited each month and five Visa Debit transactions are made each month using linked Everyday or Glide transaction accounts.
- UP Saver account – 2.25% (0.5% standard rate). Bonus rate condition: Make five or more card purchases per calendar month using your Up debit card and digital wallets (ATM transactions excluded).
- ME Online Savings Account – 2.20% (0.05% standard rate). Bonus rate condition: Make at least four tap & go payments per month with your Everyday Transaction Account debit card. Purchases must be processed in calendar month to be eligible for bonus interest.
- Bank of Queensland Fast Track Savings Account – 2.15% (0.35% standard rate). Bonus rate condition: Ongoing bonus rate applied if in the previous month $1000 or more is credited to the linked Day2Day Plus account.
Introductory (teaser) and bonus rates from the big four banks
- ANZ Online Saver – 1.6% for the first three months, then 0.1% standard rate. Bonus rate offer is only available to new ANZ Online Saver customers who have not held an ANZ Online Saver account during the last 6 months, and apply online. Offer not available to beneficiaries for an ANZ Online Saver account held on trust within the past 6 months.
- ANZ Progress Saver – 1.6% (0.01% standard rate). Bonus rate condition: make a single deposit of $10 or more in a month and no withdrawals.
- CommBank Netbank saver account – 1.65% for the first five months, then 0.1% standard rate.
- CommBank Goal Saver account – 0.9% (0.01% standard rate – higher rates for balances between $50,000 and $1 million). Bonus rate condition: deposit at least $200 and make no withdrawals each calendar month.
- NAB iSaver – 1.7% for the first four months, then standard rate of 0.11%. Introductory rate only applied to a customer's first NAB iSaver account.
- NAB Reward Saver – 1.5% (0.11% standard rate) bonus rate. Bonus rate conditions: one deposit and no withdrawals each month.
- Westpac eSaver – 1.66% for five months, then 0.1% standard rate.
- Westpac Life – 1.65% (0.45% standard rate). Bonus rate condition: withdrawals are allowed but you need to make at least one deposit and have a higher account balance at the end of month.
How much interest can you earn?
As we stated upfront, you're not going to retire early on the interest from savings accounts. Here's how much you'd earn if you paid $100 a week for one year into:
- a transaction account that pays 0.01% interest – $0.26
- an account that pays 0.5% interest – $13
- a high interest account paying 3% interest (bonus rate) – $77
- a mortgage offset account with a standard variable rate of 5.2% – $140 in the first year (savings based on a 100% offset account associated with a 25-year $400,000 home loan. NB: savings will continue to accrue over the life of the loan even if you withdraw the $5200 at the end of the year.)
High interest account traps
Many high-interest accounts offer high interest rates for an introductory period. Often those intro rates revert to very low rates after a short period.
For example, Rabobank pays one of the highest rate (2.5%), but once the four-month honeymoon ends, you end up with a measly 1.05%.
CHOICE Tip: Accounts with a bonus rate can work for you if you need a place to park your money for the short-term, as they're more flexible than a term deposit.
Many accounts – often called bonus saver accounts – give you a special rate if you make a minimum deposit such as $200 per month. Check the standard rate the account reverts to when you don't meet the bonus rate conditions.
For example, the interest rate for Commonwealth Bank's Goal Saver account reverts to a standard rate of just 0.01% if you make a withdrawal or don't deposit at least $200 in a calendar month.
Minimum deposit conditions are often paired with no withdrawals. Beware of accounts that revert to a low standard rate.
For example, Bank Australia's Bonus Saver account pays 2.0% interest as long as you deposit it at least $100 a month, but if you make a withdrawal the rate plummets to 0.05%.
Some accounts only apply a bonus rate to accounts below a limit.
For example, UBank USaver with USaver Ultra transaction account offers 2.1% interest if the combined balance is less than $200,000.
Some accounts work similar to a term deposit; you need to give a certain number of days or months notice before withdrawing your funds. For example, Rabodirect's 90 Day Notice Saver account (bonus rate 1.95%) requires you to notify the bank 90 days before you can access your money.
CHOICE Tip: Breaking a term deposit is possible, but not advisable, as it usually comes with a fee.
Some accounts have very complex conditions for their bonus rate.
For example, ING Saving's Maximisers pays the bonus rate (1.95%) only for customers who have an Orange Everyday account, deposit at least $1000 from an external bank account to the Orange Everyday account, and make at least five card purchases using an ING debit card each month.
CHOICE Tip: Make sure you only use such an account if you can fulfil its conditions without going out of your way.
Linked transaction accounts
High-interest accounts normally don't charge a monthly fee, but most need to be linked to a transaction account for deposits and withdrawals. Some will only let you link to an account with the same institution, while others let you use any transaction account.
For example, the Australian Unity Active Saver account (bonus rate 2.0%) must be linked with an Australian Unity transaction account (you also have to make a minimum monthly deposit of $250 and make no withdrawals).
CUA's eSaver reward account's bonus rate of 2.0% is also contingent on your having a CUA transaction account (and depositing $1000 into your CUA transaction account from external source every month).