High Interest Savings Accounts
Looking for a savings account that will give you the highest possible returns on your hard earned cash? You should consider getting a high-interest savings account! However, before you take the plunge there are a few things you need to know about high-interest savings accounts.
What are high-interest savings accounts?
Put simply, these are basically savings accounts that provide higher interest rates. These days, the term "high-interest savings account" is usually synonymous with online savings accounts, although it could also refer to other financial accounts with high interest rates, such as term deposits, cash management accounts, and financial accounts with bonus rates.
Benefits of high-interest savings accounts
The main benefit of all high-interest accounts is apparent: they make the most of your money's earning potential. Thus, you get more for leaving your money deposited in such accounts. Since there are several types of high-interest accounts, each one offers its own set of benefits:
Online savings accounts, for instance, charge minimal or no fees because they have lower overhead costs. Online accounts can also be accessed anywhere anytime, all you need is internet connection!
In addition to high interest rates, cash management accounts allow you to easily transfer funds between your savings and transaction accounts—and you won't have to deal with any fees in the process.
Term deposits, on the other hand, are low-risk investments because they provide guaranteed returns after a set time period. You also know exactly how much you're going to earn and control how long the funds are stashed away. However, think carefully about the term that you select as your funds will be unavailable to you for the duration of your term deposit.
How to choose a high-interest account
There are certain factors to consider when choosing a high interest accounts:
Factor #1: Accessibility
It's always tempting to open a high-interest account in a bank or credit union with a large number of ATMs and branches since logically this will make them more accessible. However, when considering accessibility, you should consider what bank branches and ATM's are located close to your home and place of employment. As these are two places where you spend most of your time, banks with facilities in those areas will obviously be more accessible and convenient for you.
Factor #2: Government backing
You may consider financial reliability as an important factor in choosing your financial institution, but as recent years have shown, even big banks can go under. Thus, it's more important to see if a bank or credit union is part of the Australian government's Financial Claims Scheme, which guarantees up to $250,000 of your money in case your institution fails.
Factor #3: Interest rate
Interest rates are an important factor when choosing high-interest savings accounts, but it isn't simply about choosing the account with the highest rates. You need to consider whether the interest rate is in fact an introductory rate designed to draw you in. Introductory rates are necessarily a bad thing, you just need to ensure that the basic interest rate that will follow is still giving you the best possible benefits.
If the account has tiered rates, consider the size of your funds. Are they large enough to earn a satisfactory rate? How is the interest calculated? Some tiered rates pay for the entire balance once your funds reach a certain amount, but some only pay the part of the balance that reaches the amount, and the rest earns at the lower tier.
Factor #4: Fees and charges
Some high-interest accounts charge more fees than others. Look at how fees add up; they might accumulate and eat away a significant part of your savings. However, minimal/no fees could mean a lower interest rate or fewer capabilities, which you might need later on.
Factor #5: Features that suit you
Examine the account's features. If it comes with things you don't need, look elsewhere especially if there's a fee involved. For instance, a transaction account's SMS alerts can be nifty; but not for $5 every month. You can get another with no monthly or transaction fees, with rebates to boot. Prioritise the needed features over the nice-to-haves, especially when money or effort is involved.
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