What are high interest savings accounts?

With interest rates on savings accounts growing significantly over the past few weeks, now is the perfect time to think about opening a high interest savings account. These accounts can really help you boost your savings, and reach your long term savings goals sooner.

But what exactly are high interest savings accounts? And how do you choose one?

In this guide we’ll save you some trouble and explain some of the differences between high interest savings accounts and regular accounts, their benefits, and some of the factors you should consider before opening an account. 

What are high interest savings accounts?

High interest savings accounts, also known as high interest bank accounts, are savings accounts that offer either a high base interest rate or offer a bonus interest rate if you follow the conditions of your account. While a regular savings account may have a base rate of 0.1% or 0.5%, higher interest accounts may offer base rates of 2.5% or 3%.

The major difference between a regular savings account and a savings account with high interest is that high interest accounts often have bonus conditions that you have to fulfil in order to receive bonus interest.

We’ll talk more about these further below, but an example would be that your balance must grow monthly in order to receive a higher interest rate. 

Factors to consider about high interest savings accounts

When choosing a high interest savings account, there are quite a few things to consider. While the interest rate on your account is important, we’ll go through some other factors that can make a big difference.

Comparing interest rates

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There’s no question that the interest rate on the account you’re considering is very important. One positive of all the recent cash rate increases is that interest rates for savings accounts have been steadily increasing, so it’s a good time to find a high interest account.

Introductory periods

Some lenders may offer an introductory period on your account, which may give you a slightly higher rate or waive extra conditions for the first few months. Finding an account with a good introductory period may be worthwhile, but like all good things this period will come to an end and revert back to the original rate.

It may be more worthwhile to look for an account that shines in other areas rather than picking one solely based off its introductory period.

Age restrictions

There are a wide range of high interest accounts out there for young people, so if you are under 25 be sure to look out for some of those deals! On the other hand, there are some higher interest accounts if you are heading into retirement, which are certainly worth looking out for.

Withdrawal amounts

In order to receive higher or bonus interest, there are often rules around the amount you can withdraw or the number of times a month you can make withdrawals. Make sure you read the conditions of an account carefully, as you may lose your bonus interest if you make a withdrawal.

Minimum balance and deposits required

Another condition that is usually imposed on high interest savings accounts is that you have to grow your balance monthly or deposit a certain amount into your account. Some accounts only require you to grow your balance monthly, even if its only a little bit, whereas other accounts may require you to deposit $1,000 a month.

Make sure you can meet the conditions of the account you are considering, as a higher interest rate likely isn’t worth putting yourself under financial stress.

Linking a transaction account and fees

In order to access your savings, you will likely have to link your savings account to an everyday transaction account with the same institution. While the high interest savings account you are considering may not have fees, the everyday account may potentially be subject to monthly fees, so keep an eye out for those.

Managing your account

The way you manage your money is important, so pick the lender and account that suits your needs. Some lenders may only operate online and don’t offer branch services, while other lenders may not offer the online or mobile banking services you need to manage your account.

Is the account insured?

Protecting your money is a big priority, so make sure you pick an institution that insures your money. Most major institutions insure up to $250,000 across your accounts, giving you the security you need to start seriously saving.

However, keep in mind that if your bank is merged with another bank or institution, you are still only covered up to $250,000 across both institutions, even if you open another account.

Benefits of savings accounts with high interest

The main benefit of high-interest savings accounts is the higher amount of interest they accrue. Another benefit is that because of their bonus conditions, they may encourage you to save more than you would on a regular savings account. 

How can I use a high interest savings account

High interest savings accounts can be used to save for a variety of things! However, many of them may have bonus conditions that reward you for not making any withdrawals, or may not provide you with your bonus interest if you withdraw your money.

Because of this, a savings account with a high interest would probably be better used to save up for very big purchases that you don’t make often, such as:

• Emergencies
• A home deposit
• A car
• A holiday