High Interest Savings - Getting the Best Return

The recent spate of rate rises made by Australia's central bank the RBA may be bad news for home owners facing increased mortgage repayments but they offer great opportunities for those with money to save. The federal rate rises has led most of the banks to up there rates meaning returns as high as 7% or over are now possible.

With the rapid rise in online banking has brought increased competition to the savings account market over the past few years. Competition has really picked up in the market and some banks have offered to pay savings interest rates several points above the official RBA cash rate.

If you're planning to open a high interest savings account, here are some things you should watch for in the product brochures.

Savings Interest Rate: Note that the savings interest rate for high interest savings account is a variable rate, subject to change depending on RBA rate announcements. It is possible that the high savings interest rate offered in the brochure may apply only during a limited introductory period. After the specified period, the savings interest rate will revert to the normal rate. Check both the introductory rate or bonus rate and the normal savings interest rate so you don't get any surprises.

Minimum deposits or balance required: Some high interest savings accounts are designed to induce you to save regularly but discourage withdrawals in order to build up the money in the account. To this end, you may have to make a minimum deposit every month (say, $50) but there is also a ceiling (say, $500). For other institutions, they may require that a minimum balance be kept in a linked transaction account (or regular savings account) for your high interest savings account to earn the offered high savings interest rate. Some banks require as much as $5000 as minimum balance in your transaction account before your high interest savings account starts to earn. Failure to keep the required minimum balance in the linked account will reduce the earnings potential in the high interest savings account.

Limits on withdrawals: One other condition that may be imposed is a restriction on withdrawals. Most of the competitive accounts don't have any restrictions or penalties on withdrawals. However there are some institutions with penalties such as no interest payable during the months in which a withdrawal is made. Make sure you understand the conditions before you apply.

Fund Transfer Interval: If the online high interest savings account and its linked transaction account are maintained in the same bank, you will have no problem with fund transfers, as these will be done immediately. However, if you have different banks for each one, you will have to plan ahead. It may take as little as 2 days before your online high interest savings account gets credited for the transfer.

If you only make a low number of transactions and want to earn a higher rate on your saving account then having an attached transaction account which attracts monthly fees may not be the best option for you. You could consider opening an internet savings account. There are a number of these on offer.

You may have to spend time reading through all the fine print and doing the sums to compare features among different high interest savings accounts. The effort will help you find the products that gives you high savings interest rate plus the conditions that fits your needs best.