Profit From The Cyber War For Your Savings

Sun Herald

Sunday July 24, 2005

Clare Kermond

Interest rates for online accounts are on the move, writes Clare Kermond.

A VERITABLE war has broken out for your savings and if you haven't checked what you're earning lately, the chances are you're missing out.

What started back in 1999 with an online account from ING Direct has spread to many more international banks with an Australian presence, a raft of credit unions and building societies, and now even the big banks.

In a bid to catch up, three of the Big Four are offering online accounts at a higher rate than their regular savings accounts, with NAB believed to be planning a launch soon.

Last December, Westpac launched its Max-i Direct internet account, offering 5.25 per cent interest for any amount up to $100,000, and higher interest for larger amounts, while just last month the Commonwealth Bank launched its Netbank Saver account, paying 5.4 per cent to savers with a balance of $5000 or more.

WHERE YOU CAN EARN THE MOST

But, as you can see from the table below, neither of these come close to making the top 10 savings accounts. In fact, the only one of the Big Four to feature is ANZ, in the guise of its subsidiary, Esanda. The Esanda Online Saver offers 5.55 per cent, and is paying $20 bonus interest for accounts opened before July 31.

It will probably come as no surprise that BankWest Direct's TeleNet Saver account, launched in a blaze of publicity nine months ago, is top of the table. At 6 per cent, its rate has been called irrational and unsustainable by rival institutions.

However, bear in mind that after the first year this product actually becomes quite uncompetitive the rate drops to 5.25 per cent.

So over the longer term, you could be better off with Easy Street Financial Services or Elders Rural Bank, both of which offer 5.65 per cent.

The next most attractive options are 5.6 per cent from Select Credit Union and, as of last week, St George. Note, however, that the latter is only for new applications made before October and the variable rate valid just until the end of the year.

Then come Esanda, Suncorp (5.55 per cent outside Queensland) and the high-profile Citibank (5.5 per cent).

Sector pioneer ING Direct, with 5.4 per cent, doesn't make the cut.

BE SURE TO LOOK BEYOND RATES

Andrew Willink, managing director of independent research company Cannex, explains that institutions can offer these high rates by stripping away many of the things that add costs, like cheques, credit or debit cards and ATM access, and by allowing the account to be operated only online or by phone. "Any complexity in any account adds to the cost. The fewer things you can do with it, the higher the yield," he says.

But as with most financial products, online savings accounts still have traps. Willink warns there are three main ones to look out for:

? Minimum balance Many internet savings accounts have special conditions such as a minimum balance, with no or low interest payable until you reach that magic number. Of those in our table, Select Credit Union and Members Equity require a minimum balance of $3000 to earn the rate listed.

? Fees Some internet accounts have become hybrids, offering the standard no-transaction account but allowing customers to buy added features such as cheques. But these extras come with a price tag and you should check the cost of them carefully. None of the accounts in the table have ongoing fees, although you need to pay a $5 membership fee with the Illawarra Credit Union.

? Access Some accounts have limits on how often you can transfer money out, and while most will transfer your money to an access account straight away, others may make you wait overnight. If this is an issue, be sure to check before you sign up.

CASE STUDY

FIONA Siseman doesn't think of herself as a great saver but she does manage something most of us would envy she puts away a bit of cash from every pay cheque and tucks it out of sight ready for the next holiday, unexpected bill or rainy day.

About four years ago Fiona, the commissions and publishing services co-ordinator at Lonely Planet, opened an ING Direct online savings account. Frustrated by earning almost nothing on her regular savings account, she says she leapt at the chance to get some kind of return on her money.

"I was pretty disillusioned with the non-interest I was earning," she says. "The appeal was that I would be earning interest and I could have [money] taken straight out of my pay before I thought about spending it. But you can still get your money if you need it."

Fiona, 34, says she first used the account to save for a mortgage, while last year it was a place to get some money together for a holiday. "About six months before we left I started putting money in there so that we wouldn't be going on holiday on a credit card."

She says the account works best for her when she has a specific goal, "and you don't spend it if you don't see it".

© 2005 Sun Herald

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