Summary: With interest rates at record low levels for years, and likely to remain low for years to come, many Australians think that switching to the best savings accounts and term deposits is pointless. Property, superannuation, shares, roboinvesting and even peer-to-peer lending are considered useful investing, but chasing 1-2% in extra bank account interest isn't viewed as worthwhile.
But the new normal is stagnation (low growth, real wages going nowhere for most workers) combined with higher investing risks due to debt levels, yield-chasing and speculation. In this context, holding a significant proportion of one's accessible wealth in safe bank savings accounts is as important as ever. Financial freedom is founded on preserving what you already have, obtaining the maximum rate of return for the proportion of funds where your capital isn't at risk, and having access to your funds when things go wrong (job loss, ill health, accident) or when opportunities arise.
In this post, I provide a regularly-updated list of the best savings accounts for Australians, as well as links for checking the best available rates at any time so you can switch between them when it makes sense.
My Situation: Over 90% of my investment wealth between 2007 and 2015 was from savings held in term deposits and the highest-paying online savings accounts (rates from 5-7%). I monitor rate changes and switch where my savings are kept if rates are higher elsewhere. UBank USaver with Ultra continues to be my main online savings account. Occasionally, I hold funds in ING Direct, RaboDirect or even RAMS Saver if their online savings accounts are offering higher interest. When a term deposit rate is temporarily offered at a worthwhile rate I often open term deposits too. In the last 3 years, I've not opened any term deposits over 12 months duration, but have opened a few 12 month TDs when their rate was at least ~0.2% above the highest I was getting in an online savings account.
As of Sept 2017, I don't use term deposits to capture ~0.2% above UBank USaver (2.87%) as the liquidity of having money available for shares or RateSetter is much more valuable than 0.2% rate differentials.
Related Posts:
> Start using the best on-call savings account and linked transaction account (UBank)
Details:
1. Use UBank USaver with Ultra as your primary on-call savings account
UBank USaver with a linked Ultra debit card transaction account reliably pays the highest interest for online savings accounts in Australia. Other banks may have higher 3-4 month intro rates and a few - ING Direct, Rabodirect, RAMS - may temporarily offer ongoing rates that are ~0.1% higher, but there is never a bank that offers an ongoing rate higher than this that is worthwhile (ME Bank nominally does but the conditions are too onerous to be worthwhile).
In 2010, the UBank USaver reached 6.51% and then, as interest rates dropped, it's maximum rate has steadily dropped to the current 2.87% in 2016 and 2017. However, at any point since the account was available in 2009, its rate has been within 0.2% of the highest available anywhere (even temporarily) and significantly higher than most savings accounts.
So even if too lazy to do anything else, the minimum one-off action one can take is to switch to using UBank USaver with Ultra as one's primary online savings account and ensuring that all incoming/holding money (like one's wages, investment returns or money for expenses/transfers) is earning this rate of interest.
See:
> Start using the best on-call savings account and linked transaction account (UBank)
2. Which other online savings accounts should I check to see if paying the highest current rate without onerous conditions?
Other than the UBank USaver with Ultra, the other major online savings accounts that may temporarily offer better rates are:
- ING Direct's Savings Maximiser (need to automate a monthly $1000 transfer in and out of the Orange Everyday transaction account)
- RAMS Saver (need to automate a monthly $200 transfer in and out)
- One of Rabodirect's savings accounts like the High Interest Savings Account or Notice Saver
Most other banks will never have an online savings account with a higher rate that lasts or doesn't have onerous conditions (ME Bank is notorious for having nominally higher rates but with ridiculous conditions like making monthly tap-and-go purchases).
There are a few other banks that offer savings accounts with nominally high interest rates but these are not worthwhile for most people due to the onerous or restrictive conditions which can include:
- A very low base rate (even 0%) if you don't meet all the conditions in a month
- No withdrawals allowed
- Having to make a tap-and-go purchase each week (ME Bank uses this)
- Having to maintain too large a balance in a linked transaction account that pays negligible interest
- Too tricky conditions on making qualifying monthly deposits or maintaining an increasing balance
- Not applying the bonus rate till the next month
You can use a comparison site like Mozo to find all current offers and sort them by the interest rate. You'll need to work your way through eliminating the ones that are for 3 or 4 months only. Doing this review once a year is a good way to detect new entrants in the marketplace (typically online-only, low-cost banks) that you can keep a closer eye on.
See:
> Mozo: Experts Choice - Best Savings Accounts
After having used a bank's 3-4 month bonus rate once, it's rare that you can get it again. The one exception is RaboDirect which occasionally sends existing customers an email reoffering the bonus rate for 4 months for new money added to the account. New money being defined as extra deposits on top of all RaboDirect online savings accounts (e.g. you can't just transfer from Notice Saver to High Interest Saver).
3. Which other bank accounts have worthwhile new account promotions?
A potential reason to temporarily use other bank accounts include some bonuses for new accounts that are very worthwhile.
The best is ING Direct's occasional offer that enables new customers to have an ongoing referral code and receive $75 for new referrals. The current promotion runs till 31 July 2017 and has no limit on the number of $75 referral bonuses you can receive. It also tends to offer an ongoing signup promotion (worth $50-$75) most years.
Many other banks offer around $50-$100 for new customers opening accounts and meeting some minimum deposit conditions. E.g. Virgin Saver offered $100 for new accounts. Citibank Plus has offered up to $120 for 12 months of deposits.
And most banks offer special 4 month introductory rates. You can keep track of these on a comparison site like Mozo
4. Which banks regularly offer the best term deposit rates?
The best term deposits rates are usually offered by:
- Rabodirect
- ING Direct
- UBank (only up to 12 months)
However, at times when banks are very keen to raise funds, the best rates could be offered by any bank, including ones normally least competitive. During the GFC Westpac briefly offered a 8% 5 year term deposit. Bankwest offered 5 year TDs over 7% for over 6 months after the GFC.
You can use a comparison site like Mozo to find all current offers and sort them by the interest rate.
See:
> Mozo: Term Deposits - Compare
As of 2016, I don't recommend using term deposits above 12 months as the rates offered (less than 3.2%) are not worthwhile given online savings accounts pay 3% (RAMS Saver) and interest rates are at record lows so it doesn't make sense to lock in these record low term deposit rates for more than 12 months.
Occasionally, Rabodirect, ING Direct and Rabodirect will offer 12 month term deposits around ~0.2% higher than their top online savings account rate, so it can make sense to lock in these rates for 1 year if the money would otherwise just be sitting in an online savings account.
5. How do I best monitor the current rates of interest I am receiving and competitor rates?
The banks recommended make monitoring their rate changes easy enough. Rabodirect and ING Direct email you directly about rate changes. UBank generally only posts on its Facebook and Twitter pages.
However, UBank does list the current interest rate at the start of each month within the transactions list which is a very handy reminder.
The best comparison sites are:
- Canstar
- Mozo
- Finder
The best way to be alerted to special offers and exceptionally high interest rates is via Ozbargain.com.au - Deals - Financial
The Whirlpool community keeps a spreadsheet updated which is publicly available here: Whirlpool AU Bank Account Comparison
6. Why do some other personal finance bloggers advise not to bother trying to maximise your online savings account interest rate?
The bloggers that do are primarily motivated by making money from their advice niche not what's actually in everyone's best interests.
For example, Ramit Sethi from I Will Teach You To Be Rich offers this candid advice in his article on the best savings account:
But Ramit runs his website to sell stuff directly or make money indirectly. His niche is in systems and figuring out behaviours or tactics that work. He has no motivation to constantly keep track of the best savings accounts, not even in his own country. His America-centric advice on things like bank accounts is irrelevant to Australia, where bank interest rates are much higher and the risk-reward equation much different.
In Australia, term deposits and online savings accounts should always be a significant part of your investing: the safe, stable, stress-free, liquid part, that is also available to be used opportunistically.
By ensuring you receive the maximum interest rates available, you can have a large proportion of your net wealth generating reliable income at risk-adjusted yields far superior to many alternatives. E.g. Receiving 6-7% 5 year term deposit yields while others feel forced to take risks on property, shares, debentures and investment schemes, or just buy material goods instead.
Another advantage of putting in the effort to maximise your returns from term deposits or savings accounts is that you'll build a buffer to ride out periods of low interest rates as well as have a higher barrier for riskier investments whose marginally-better potential returns may not merit the difference in risk.
Conversely, those whose baseline risk-free investment yield is ~1%, or is so low they think it's not worth any time maximising, are compelled to chase riskier or illusory paths to wealth-building: including paying for advice from bloggers promising to teach them to be rich.
7. Don't term deposits and savings accounts underperform other conservative investments including bonds, property, unlisted assets and infrastructure?
Investment managers and financial advisors may claim there are always better options than the best bank savings products but it's in their financial self-interest to advise this. Once you take all investment costs into account, and the greater risk, volatility and illiquidity of the alternatives, it's clear that the best bank savings products should always be a significant part of any Australian's investment portfolio.
Indeed, if you assess the medium or long-term returns of the conservative alternatives to term deposits or online savings accounts you find they often return less while having greater risk, volatility or illiquidity.
For example, ASG provides conservative investment products aimed at saving for your children's future education costs. But it's medium and long-term performance is only around 4% while it's recent performance is below 3% (and this is before fees). Like all other self-interested providers it compares its performance to median bank interest rates but these rates are much worse than can be obtained by any Australian who spends a few hours a year following the advice in this blog post:
The reality is that most truly-conservative investment portfolios will underperform the best bank savings products for Australians. In fact, these portfolios often are forced to hold significant proportions of their portfolios in cash (or cash equivalent products) at rates that can't match those on offer to retail depositors.
Further Information:
Canstar
> Savings Accounts
> ‘A Nation Of Spenders’: Australia’s Poor Saving Habits Revealed
Mozo
> Savings Accounts
> Term Deposits
UBank
> Newsfeed
> Can you re-train your brain to help your spending and savings habits?
news.com.au
> Savings rates fall below inflation
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