Double-click And Watch Savings Grow

Sun Herald

Sunday June 17, 2007

Debra Cleveland

Internet banking offers some of the highest interest rates, writes Debra Cleveland.

AUSTRALIANS looking for high-interest savings accounts are spoilt for choice. Last month's entry of the Dutch-owned Rabobank to the online market, offering 6.6per cent interest, means there are more than 10 internet banking accounts offering 6per cent-plus.

With online accounts becoming simpler and more streamlined, they've left other savings accounts for dead in terms of higher interest and fewer fees. If you're one of thousands of Australians with older-style savings accounts, do some basic housekeeping to make sure you're still getting the best deal.

A few years ago, savings accounts offering "bonus" interest became very popular. They offered more interest if there were regular deposits and no withdrawals in a month. Now savers can get much higher interest rates, with no conditions attached, by switching to an online account.

For example, National Australia Bank 's Smart Reward Saver offers 5.51 per cent interest, but only if you make one deposit a month and no withdrawals; otherwise you get a mere 0.01 per cent. Customers wanting to stay with NAB would be better off with an iSaver account, offering 6.1 per cent regardless of deposits and withdrawals.

Denis Orrock, general manager of research group InfoChoice, says competition in the online accounts market is fierce.

"Online savings accounts have become the new battle ground," he ays. "Consumers are smarter and will switch to higher rates ... They are rate-driven and they will move their money for a better rate."

Andrew Willink, executive chairman of RateCity.com.au, a website that compares banking products, says the list of high-interest savings account providers is destined to grow as other financial organisations follow the lead of groups such as Rabobank.

"There are likely to be more entrants to the market, putting pressure on existing institutions that haven't made as much of a splash as, say, BankWest and ING, which are now very well-established brands," he says.

THE BEST RATES

You'll find a list of the top savings accounts in the Best Buys tables on page 9. The highest interest rate, 6.8 per cent, is offered by BankWest's TeleNet Saver account, but this is a special introductory rate for the first 12 months. It then reverts to 6.25 per cent. Rabobank's new RaboPlus account is No.2 on the table, at 6.6per cent. Next are HSBC's Serious Saver (6.4per cent) and Members Equity's InterestME (6.25per cent).

WATCH OUT FOR FEES

For savers looking at these rates and wondering whether to switch, remember that an online account requires a linked transaction account. If your regular transaction account is with another institution, it will cost you money every time you transfer money from it to the online account.

If your transaction account has a monthly "blanket" fee with no limit on transactions, internet transfers will not be a problem. However, where there are limits to the number of transactions, Willink says it could cost you between 25 cents and 50 cents a time, thus eroding the actual interest rate you're getting.

In these cases you could be better off staying with the same institution's online account, even if the interest rate is a little lower than that of its competitors. The other downside to saving with another institution is that transferring money from one bank to another can lose a few days' interest, Willink warns.

SUB-ACCOUNTS CAN WORK

If you need to access your savings on a regular basis, think about putting your savings in a "sub-account" of your everyday transaction account, suggests InfoChoice's Orrock.

Suncorp's Everyday Options sub-account, offering 6.2 per cent, is a good example of this, as is the Westpac One sub-account, which pays 6.3 per cent. If you're already using these transaction accounts, it makes sense to make use of the sub-saving facilities, but if you're thinking of switching, do your homework first by checking on the monthly transaction account fees.

"Think about how you want to access your money before you decide which savings account you want," Orrock advises. "If you need to access the money in a regular way, like a transaction account, the sub-accounts can work well but if you don't need access, you may want to think about a term deposit."

LOCKING AWAY CAN PAY

Interest paid on term deposits can vary. A three-month term deposit with Suncorp, for instance, will pay 6.35 per cent, while a similar product with ANZ pays 6.1 per cent.

Although not as sexy as online accounts, term deposits can be useful in an environment where interest rates are moving.

"All the online accounts are at call or variable rates, so if interest rates drop, they will drop too," says RateCity's Willink. "The other alternative is the many really good rates in short-term term deposits, or other specials for between six and 12 months."

One example, he says, is the 6.8 per cent offered by the NSW Teachers Credit Union over five months. "Many institutions, even the large banks, offer term deposits at rates between 6 per cent and 6.5 per cent for periods between three and 12 months. There are often special deals."

CASE STUDY

WHEN IT specialist Ian Choy opened an ING Direct Savings Maximiser account in 2001, it was a market leader, offering 4.5 per cent interest. Now Choy is earning 6 per cent on the account, but big growth in the online savings arena means he could earn up to 6.8 per cent elsewhere. Choy, above with wife Lee and children Kayla, 9, and twins Liam and Danika, 11, has enjoyed the simplicity of his high-interest account but is thinking about opening another account with a higher rate. "It's only in the past six to eight months that the ING interest rate has not looked as attractive - given the BankWest rate of 6.8 per cent for the first year, and then 6.25 per cent," he says. On the ING account, no minimum balance is required and interest is calculated daily and paid monthly. Choy's account is linked to a transaction account with his everyday bank and when he needs to transfer funds, the transaction takes about two days to clear.

© 2007 Sun Herald

Back to News Index | Back to Home