High-interest savings accounts

Base rate plus bonus rate

Most Australian high-interest savings accounts split the advertised rate in two:

• A base rate, paid unconditionally. Often very low.
• A bonus rate, paid only in months where you meet the account's conditions.

The number in the advertisement is the two added together. If you miss a condition in a given month, you receive the base rate for that month — which can be a fraction of what you expected.

Typical conditions

• A minimum monthly deposit — commonly a few hundred dollars, often required to come from an external source rather than a transfer between your own accounts.
• No withdrawals in the month. This is the one that catches people, and it is a poor fit for an emergency fund.
• A balance that grows each month, not just holds steady.
• A linked transaction account, sometimes with its own transaction requirements.
• An age limit on youth or student accounts.
• A balance cap — the bonus applies only up to a threshold, with the base rate above it.

Introductory rates

Many accounts pay a high promotional rate for an initial period — often four or five months — before dropping to a much lower ongoing rate.

These are worth taking if you will actually move the money afterwards. Providers rely on you not doing so. Put the expiry date in your calendar the day you open the account.

Savings account, term deposit, or offset?

The offset point is the one worth dwelling on. If you have a home loan with an offset account, money sitting in the offset reduces the interest charged on the loan. That saving is not income, so there is no tax on it.

A savings account paying 5% and taxed at your marginal rate can easily deliver less than an offset against a 6% mortgage, which is effectively a tax-free 6%. If you have a mortgage, compare the two before chasing a savings rate.

Before you open one

1. Check it is an ADI and understand the Financial Claims Scheme limit, especially if you hold a large balance across brands that may share a licence.
2. Read the bonus conditions, not the headline.
3. Find the introductory expiry date.
4. Check whether there is a balance cap on the bonus rate.
5. Work out the actual difference using the compound interest calculator with your real balance. On $10,000, one percentage point is $100 a year before tax — worth knowing before you restructure your banking for it.

Tax

Interest is assessable income and must be declared. Your bank reports it to the ATO, and it is generally pre-filled in your return. Provide your TFN to the bank — without one, tax may be withheld from your interest at the top rate.

Our calculators show pre-tax figures. What you keep depends on your marginal rate.