Growing your savings faster
Savings accounts are specifically designed to help your savings grow faster. They offer a higher interest rate than basic transaction accounts. Some also make it harder for you to access your money so you are not as tempted to dip in. With more money saved, you will be able to take that dream holiday or save the deposit for your first home sooner.
Here is some information on how savings accounts differ from other accounts and how to choose the right one for you.
1. How savings accounts are different
2. How to find an account that's right for you
3. Paying tax on your savings
How savings accounts are different
Savings accounts offer a higher interest rate and can help you save by giving you less access to your money.
Most people choose an online savings account, which are convenient because you can easily transfer money from your transaction account into the savings account. Online savings accounts encourage you to leave your money alone so it can grow through compound interest. Some savings accounts even reward you with higher interest if you make regular deposits into the account.
Compound interest is like double chocolate topping for your savings. It helps you to save even more. Find outhow compound interest works.
Saving accounts for kids
There are savings accounts specifically for children that reward them for making regular deposits. However, it is important to understand how income earned in these accounts is treated for tax purposes. Check with the Australian Taxation Office (ATO) to see how these accounts are taxed. Setting up one of these accounts with your child can give you the chance to talk to them about the value of saving.
How to find an account that's right for you
To decide which savings account is best for you, compare these features:
1. The interest rate, how regularly you receive the interest and how long any honeymoon or introductory interest rate applies
2. Minimum and maximum account balances
3. Account keeping fees
4. What interest you lose if you withdraw money and what rewards you get if you deposit money regularly
5. Whether a linked account is required
You should also check whether the account is offered by an Authorised Deposit-taking Institution (ADI). ADIs are regulated by Australian Prudential Regulation Authority (APRA) so your money is safer with them. Check whether the institution offering the account is on APRA's list of Authorised Deposit-taking Institutions.
Remember, online savings accounts may give you less access to your money than ordinary transaction accounts.
If you're a low income earner you might qualify for a savings program, offered by some charitable organisations.
Find a basic bank account
Some financial institutions offer basic bank accounts with:
1. No account keeping fees
2. Free monthly statements
3. No minimum deposit amounts
4. No overdrawn fees
You can find which financial institutions offer these basic bank accounts on the Australian Bankers' Association's Affordable Banking website.
Paying tax on your savings
Remember that any interest you receive from your savings account must be declared in your tax return.