What is a savings account?

A savings account is a safe, secure and accessible place to store your money. But unlike everyday bank accounts you use to pay bills or cover expenses, a savings account allows you to deposit money for future needs while earning some interest. 

But why should you get one? And how do you pick one that fits exactly what you need? Below we have answered some of those pressing questions.

Security:

A savings account is a good way to keep your money safe while also growing it. Part of the reason it’s safe is that deposits up to $250,000 are guaranteed under the Australian government's financial claims scheme (FCS).

Flexibility:

Savings accounts are also flexible in that they can be used for your specific financial situation. For instance, you may be working towards an emergency or sinking fund. Alternatively, you may be saving money as a deposit for a home loan. You can use a savings account to help you meet such financial goals.

In short, some of the main reasons you’d consider a savings account include:

• Preparing for emergencies
• Buying big-ticket items or goals
• Reducing the temptation to spend
• Helping improve your credit score.

Choosing a savings account can depend on your individual needs. However, there are some universal things that a good savings account should have.

Below we've listed the top considerations:

No monthly fee:

• Fees can vary between savings products. There can be things like minimum requirement fees, withdrawal penalties and transaction fees. But ideally, you want a saver that doesn't come with a monthly fee.

A good ongoing interest rate:

• One of the main points of using a savings account instead of a regular everyday account is that you’ll earn more interest. So choose an account with a high interest rate. Of course, savings accounts usually have a variable interest rate so they are subject to change in line with the official cash rate.

Withdrawal flexibility:

• Most savings accounts let you withdraw money as you like, but that’s not always the case. Many of the savings accounts in Mozo’s database will drop the bonus offer rate if you withdraw within the month.

A linked transaction account:

• Typically savings accounts offer a linked everyday transaction account, and some even require them. 

There are many savings account options available in Australia, each with pros and cons. Below is a quick rundown:

Bonus saver

• With bonus saver accounts you get conditional bonus interest rates - if you meet specific criteria. This could be a minimum monthly deposit, not making a withdrawal in a month or having a certain balance in the account.

Long term savings

• Long term savings account tend to have high ongoing interest rates, so you could leave your savings there for a couple of years. Alternatively, you could look into term deposits, which let you lock in a rate for a fixed period of time.

High interest

• High interest savings accounts offer some of the best rates around and could help to grow your money faster. Keep in mind that some require you to maintain a minimum balance or make a monthly deposit of a certain amount to ensure a higher rate.

Kids account

• Kids saving accounts are for those under 18, but some go up to 25 years of age. Kids accounts don’t come with too many restrictions and tend to offer fun graphics and charts to keep little saver motivated.

Are there any disadvantages to savings accounts?

A savings account is a safe and simple way to save money, and so there aren't any distinct disadvantages to using one. However, choosing a saver with the best possible interest rate available and with limited fees or penalties, will help ensure you're getting the best out of using one.

It's also worth noting that the earnings made on a savings account can be much smaller than through other investment options. That's the point though! Earning interest and therefore growing your saved money takes time and should be viewed as part of a long-term plan.

If you're looking for a new savings account, check out our experts' savings account comparisons and get busy saving!