How to translate ‘bank speak’ on interest rates
If you need cash on hand rather than having it locked in a term deposit or the share market, high interest savings accounts (HISA) are a good option. But with interest rates on savings accounts falling faster than you can say RBA, customers are shopping around to find the best HISA for their money.
There are lots of new account options on the market at the moment, so what should you be looking out for in your own quest for interest?
Maximum variable rate: the highest possible interest rate you could be earning on your money; it’s the standard variable rate plus the bonus rate. The absolute highest you’re likely to get these days is around 2.25%.
Standard variable rate: The base interest rate that you’ll earn on your savings. Currently, you could be looking at as little as 0.01%, at which point your money is actually decreasing in value thanks to inflation.
Bonus rate: The extra amount you’ll get on your savings if you meet certain criteria (see below).
Traps for young players
Introductory rates: Many banks will try to lure you and your savings in with high introductory interest rates that then lapse into much lower rates after the initial period. They rely on you forgetting or being too lazy to change to another bank, leaving your money earning you nothing.
That said, if you know you will move it after the introductory period, there’s no reason not to take advantage, though you will probably only get the introductory rates on your first ever account with that bank. And if you only need somewhere to put your money for a few months, it’s a more flexible option than a term deposit.
Maximum variable rates: Banks will advertise their impressive maximum variable rates, but make it difficult to take advantage of them, leaving you earning their stingy standard rate.
Minimum deposits: Many accounts will give you a good rate if you deposit a set amount each month. If you don’t make the deposit, too bad – you’re earning 0.01% that month.
No withdrawals: Some banks offer good rates on the condition you make no withdrawals from your savings. This is fine if you know you definitely won’t need to touch your money, otherwise it’s not a good bank account for you.
Maximum savings: Some accounts only apply the bonus rate to a certain amount. Any money beyond that only earns the (tiny) standard rate. It’s usually fairly high, above $100,000, but if you’re trying to earn interest on your house deposit, for example, you may not be getting the full benefit.
Required purchases: Some banks require you to make a certain number of purchases from your linked transaction account before you get the bonus rate. This is usually fairly easy as long as your everyday account is with the same bank, otherwise you’ll find yourself juggling.
A complex set of conditions: Some banks require you to fulfil several of the above criteria to earn their maximum variable rate, so you could be depositing money, making transactions and keeping an eye on how much you have in that account. If you can manage all that, great. Otherwise, rethink your HISA choice.