High interest savings accounts explained
So you finally made the decision to ditch the piggy bank you’ve had since you were twelve and upgrade to a high power savings account? Congrats!
That means you’ve probably already researched the different types of savings accounts on the market, and picked out a high interest account as the right fit for your money stash. Well, to help you make the most of it, we’ve got all the details, features, tips and tricks you should know.
What is a high interest savings account?
Just what it says on the tin - a high interest savings account is one that will give you the maximum return for your money.
When you put your rainy day fund away in a savings account, the bank pays you interest for doing so. This interest may not seem like a lot at first, but over time it builds up, and what can seem like a small difference in interest rates may mean a big difference down the line. Check out the table below, which uses our savings calculator to show how much interest you’ll earn on $1,000 with two different interest rates.
|After 1 year||$26||$37|
|After 10 years||$290||$433|
How do I know what a ‘high’ interest rate is?
The thing is, savings accounts work on variable interest rates, which means they can change with the market. So what’s high today may not be high tomorrow. Well, then how do you find a high interest savings account? That’s where Mozo comes in. We keep a close eye on the market and update our saving accounts comparison table regularly, to help you find the best deals possible.
But, if you’re looking for a little more certainty, why not check out a term deposit, which will let you lock an interest rate you’re happy with in for a fixed term.
What features should I look for?
You mean besides the obvious, right? The first thing you’ll be concerned with when choosing a high interest savings account is… well, the interest rate! But there’s more to a successful savings account than a great interest rate. Here are some other features you should look for when choosing a place to park your cash.
No extra fees:
Unnecessary fees are one of the quickest ways to drain your savings stash. There aren’t really any savings accounts that charge monthly or annual fees anymore, but you might wind up paying transaction fees, and more often, you’ll pay fees on the transaction account linked to your savings account. So be careful what you sign up for, and make sure there won’t be any fees for accessing your own money.
Some banks require you to have a linked transaction or everyday account, and if you’re planning to spend your savings at all, through the linked account is the most convenient way to do it. You can’t actually take money out of your savings account through an ATM or debit card - it comes out of a linked transaction account, which is where you store your day to day budget. This account often doesn’t give you a great interest rate, and it’s usually where you may be hit with fees and extra charges. So before you sign up for a savings account, check that the linked transaction account is competitive as well.
Remember: If you want to open a transaction account and saving account with different banks, make sure both will allow transfers between banks first.
If you want to spend your savings, you have to first transfer them to your transaction account, which makes accessibility really important. That’s why, when you look for a high interest savings account, it’s a good idea to choose one that offers online banking options. That way, you can have access to your money anytime, anywhere. Another plus is that online transfers are usually fee free, whereas some providers charge for transfers from your savings account if you do it in a branch.
Ways to earn more interest
Make regular deposits
The best way to get your interest working for you, is to keep your savings plumped up. Because your savings account interest is compound interest, the more money you have in the account, the more interest you will earn. But how much of a difference can it make? Well, say you had $3,000 saved in an account with a 2.75% interest rate. At the end of three years, you’d have earned $258 in interest. Not bad, right? Now say you had the same savings, in the same account, but made a monthly deposit of $150. You’d earn $480 in interest for a total of $8,880 at the end of the three years. And that’s even better.
Keep up with bonus offers
Want another reason to make regular deposits into your savings account? Here it is: that’s often one of the conditions for getting your hands on some great bonus rates. Other conditions might include not making any withdrawals or bundling your banking products. If you stick to them, you’ll make extra interest each month.
Set up automatic payments
This is a great way to do the above two things. Set up an automatic payment, so that every time you get paid, a portion of it gets squirreled away into your savings account. That way, not only are you plumping up your savings and earning more interest, but you’re sure to qualify for the bonus rates as well.
Don’t let your savings sit in a transaction account
The name of the game here is keeping your savings account balance as high as possible to earn the most interest you can. So don’t let your savings sit in your low-earning transaction account. If you don’t need immediate access to the money, transfer it back over to your savings account until you do.
Online savings accounts have some of the most competitive interest rates around, because they don’t have the costs of a brick and mortar bank to support. So if you’re searching for the highest interest rate possible and don’t mind managing your savings from behind your keyboard, it’s time to get digital!
Ask an expert
Not sure where to start? With so many options out there, it can all be a little overwhelming. So, start your search for the perfect savings account by seeing what the Mozo experts have to say in our Experts Choice Savings Account Awards.
Find a high interest savings account
Ready to start making your money work it’s hardest? Jump over to our high interest savings account comparison table to compare all the options on the market and choose the one that’s right for you.