Money

Shop around for savings accounts

Paul Clitheroe
Paul Clitheroe

Despite recent hikes in home loan interest rates, the major banks have been slow to raise rates on deposits. But your choice of savings account could be the real culprit behind low returns on your spare cash.

According to research group Canstar, almost one in three deposit accounts pay no interest at all on balances up to $1,000. One in two accounts pay less than 2%, and only one in four savings accounts pay a return greater than 4%.

Things may be a little better if you have a reasonable sum to invest though be on the lookout for 'stepped' - or tiered, interest rates. These apply to around 15% of savings accounts, and the top rates are usually reserved for substantial balances. If your savings dip below a certain level you could be left earning zero interest.

These pitfalls all highlight the need to be picky about where you invest your spare cash.

Along with making sure you are paid interest on the entire account balance, keep an eye on fees. These can have a big impact on your returns.  If you are paying $5 in monthly account keeping fees, the cost works out as an annual charge of 3% on a balance of $2,000. That could be more than the interest you're earning.

With plenty of financial institutions and accounts to choose from, it can be difficult knowing where to get a good deal. Canstar's recent Deposit Star Ratings report offers a useful starting point. It compares 392 deposit accounts across different types of users, in the process revealing financial institutions that many Australians may not be aware of. For example, Beirut Hellenic Bank is not a household name but its Smart Net saver scored a 5-star 'outstanding' rating based on a strong rate of 5.9% and zero account keeping fees.

One thing I am often asked about is the security of deposits held with these smaller banks.  All financial institutions that accept deposits must comply with the requirements of the Australian Prudential Regulation Authority (APRA), which are regarded as strict by world standards. So while you may not be familiar with a particular institution, is has to abide by the same rules as the big banks.

The federal government also guarantees the security of deposits up to $250,000 held with Australian-licensed banks, building societies and credit unions. It is estimated this covers around 99% of deposit accounts.

Doing some research to find the deposit account that will pay the highest return for your savings is important. But there are other ways to earn decent returns on cash - and achieve diversity within this asset class.

A broad selection of managed funds provide an indirect way to invest in fixed interest assets like corporate or government bonds plus the wholesale money market. Or you can invest directly in Australian government bonds by applying through the Reserve Bank. Visit www.rba.gov.au and click on 'Financial services' to see what's involved.

For more tips on getting more from your money download a copy of my Guide to Successful Investing from www.paulsmoney.com.au.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.
 

Topics:  budgeting paul clitheroe savings



Unions take to streets as Sunday penalty rates cut

Retail workers will be among those hit by the changes.

Thousands of lowest paid workers to be hit by changes to pay rates

You're invited to help celebrate Col's last day

Col Green from the South Grafton Ex-Servicemen's Club who are having great success with their tribute shows.

South Services secretary-manager retiring

Local Partners

Buderim dad rejects gay son's emotional plea for second time

Bride and Prejudice: Son’s emotional plea rejected again by unmoved father

What's on the big screen this week

Ewan McGregor and Jonny Lee Miller in a scene from the movie T2: Trainspotting.

This week's new releases offer plenty of variety for movie buffs.

Yamba show sounds Crazy

GROOVY POP: Crazy Old Maurice is take to the stage at the Pacific Hotel Sunday afternoon.

Newcastle band to bring the house down in Yamba

Bernard, Kasey, Spooky Men, and more this weekend

Mal Eastick returns with his Blues Bar on Sunday at the Yamba Golf Club.

Touring shows bring mix of genres to Clarence

Duo Hard Drive to rock Clocktower Friday

Hard Drive, Stephen Herbert and Dwayne Doyle, who are playing at the Clocktower Hotel this weekend.

Enjoy Hard Drive at the Clocktower this weekend

REVIEW: Under the Gun doco looks at right to bear arms

ARMED: A still from the 2016 documentary film Under the Gun by Stephanie Soechtig.

An in-depth look into America's gun culture.

Hodges proud to be part of first channel dedicated to NRL

Justin Hodges is gearing up for his new gig on Fox League.

Footy star hopes to provide a voice for players on new NRL channel

$140k damage: landlord says property trashed, contaminated

He had what he calls "the tenants from hell"

Submarine, buses and 3000 tyres removed in $100K clean up

The list of things removed from this property is beyond astonishing

Houses selling like hot cakes

HIGH DEMAND: Maclean Valley 2 Coast principal Ingrid Nott.

Valley's housing market pushed by supply shortage and jobs growth

Popular island resort sells to loaded international investor

OUR PICK: Chris Foey's colourful shot of one of Gladstone's great tourism hot spots, Heron Island.

International investor snaps up piece of Gladstone paradise.

Ready to SELL your property?

Post Your Ad Here!