Savings Accounts – an Introduction to Online Savings

Mortgage repayments have gone up alongside credit card and personal loan rates with the latest cash rate rises by the Reserve Bank of Australia. Even though this has spelt bad news for many people there are still some ways to make good of this situation, especially if you have some money tucked away. In saying so, the rate rises have had a positive effect on term deposits and high interest savings accounts. This is certainly not breaking news any longer. But for those of you out there who are just starting to save for the future, or even for your first home, there are some things that you might have missed.

Term Deposits
Term deposits normally require a minimum opening deposit of $1000. They are a great way to discipline your savings habits as they enable you to budget your money and not just withdraw it as you please. You are essentially locking your money away for the agreed term so if a situation arises where you need to withdraw funds than be prepared to pay what is known as a ‘penalty fee’ or ‘early withdrawal fee’. If you have invested a large amount this could be costly. It would also defeat the purpose of using the term end date as a source of cash flow. So be sure you have considered how accessible you need to be to the funds you intend to put away before committing to an agreed term.

Savings Accounts
An online savings account or high-interest savings account is another great way to start saving. Many accounts only require a minimum opening deposit of just $1.  Both of these types of accounts are intended to help you reach your savings goals sooner. They have been introduced by the developments in online banking over the past decade and now with such secure online access, practically all transactions can be conducted safely online. Because this cuts out on staff and branch resources they are online accounts are extremely profitable to run.

For the consumer the benefits are echoed in the higher interest rate. Online access means funds can easily be transferred from one account to account; this often being instantaneous if your transaction account is with the same institution as your savings account. This easy access to funds however could be disastrous if you have poor savings habits. Reason being is that it is a much easier way to withdraw money from an online savings account then it is from a term deposit. But, if you do have constant access to the internet this might work if your favour as you will not be inclined to habitually hop online and transfer money.

Get in before it’s too late
If you haven’t already opened up a term deposit account than now is the time to do so. Many people have already started to capitalize on the high cash rates offered by most institutions and lenders, but for those procrastinators out there - you better get in quick! In the past week there has been a dramatic drop in the term deposit rates advertised by the four major banks: ANZ, NAB, Westpac and Commonwealth. Rates up around the 8.1% mark for 180 day terms have now plunged to 3.65% and 4.55%. According to www.RateCity.com.au, “this could be an economic indicator that the banks think rates in general are in for a tumble.” It’s not certain if other institutions will follow in-step, but so long as institutions such as RaboPlus, ING Direct, Bankwest and Defcredit are still advertising term deposit rates from 8.00% to 8.50% at 180 day terms, it makes sense to take advantage of those competitive rates whilst they last.

The key to selecting the best account is to firstly identify your savings/spending habits and then to select the product which has features most suitable to your needs. Just like an online savings account, everything can be done online. RateCity.com.au is an information rich website and also a good place to start searching and comparing all the savings products available on the Australian market. Their comparison searches allow you to narrow down your search by comparing products by highest rates, institutions or by CANNEX star ratings.