So you’ve actually managed to do something relatively adult and accumulated a sum of money that could conceivably be considered as “savings”. So now what do you do with all that moolah? And how do you make it grow? The difference between everyday banking accounts and savings accounts is that it lets you do just that – grow your money to save. Higher interest means you get to save even more, and the more you have in your account, the more interest you will accumulate.
It’s helpful to sit down and think about what type of saver/spender you are. Are you good at depositing your money in a bank account and leaving it? Or are you constantly putting money in only to take it back out again to blow it on new sneakers? Once you’ve figured that out, you should be able to decide on the type of savings account that lines up with your personality.
What does interest actually mean and how does it work? Basically, interest is a set percentage that gets added onto your balance and is kind of like the bank’s way of rewarding you for saving and keeping your money with them. Interest is usually calculated daily based on the yearly (per annum or p.a.) interest rate divided by 365, and is paid to your account monthly. So, at the end of the month, you should receive a deposit from the bank into your account that is a small percentage of your savings – in other words, you get free money! You can read more about the types of interest here.
This is the standard, vanilla option, so much so that a lot of banks dress it up with exciting names like “Everyday spender”, “On-the-go”, or “Aspiring baller” (if only). The skinny of it is, you deposit money in and this magic thing called interest lets it grow based on a set percentage. These accounts generally allow you to deposit and withdraw money whenever you want, similar to a transaction account. The trade-off is that the interest earned may not be as high as other savings accounts, so you may not be able to get as much free money as you might like.
Pretty much like a regular savings account, but exclusively online, with some having no minimum opening deposit, no daily balance requirement, no monthly maintenance fee, and a nice high interest rate to make up for the fact that it’s only online (which isn’t really a downside these days). An actual downside, however, is that it may take longer to access and transfer your money.
Rewards savings accounts basically reward you with bonus interest for meeting certain savings goals. These accounts might have specific requirements you have to meet to be rewarded with higher interest returns, like a minimum monthly deposit or no withdrawals throughout the month. Whatever the rules, they’re generally a great way to encourage good savings habits. But remember: if you can’t stick to the account requirements, you wont be able to earn the high interest you’re after (there’s usually a base rate of interest you’ll receive no matter what, but it’s generally very small).
If you really want to save a decent chunk of money but struggle to keep your mitts off your cash, then term deposits could be the option for you. Term deposits are accounts that require you to lock your money in for an agreed period of time in exchange for a fixed and usually higher interest rate. You usually wont be able to access your money for the agreed time period – usually 1 month to 5 years in length – without getting penalised, often with low or no interest.
Designed for people under the age of 18 (although some go up to 21 years of age), youth saver accounts aim to teach young’uns saving habits and build a solid foundation for their financial future. Some youth saver accounts act as a hybrid for several different accounts with the features included, for example bonus interest rates for depositing without spending, online access, etc. Do a bit of research to find out what works for you.
This information is intended to be general in nature only and might not apply to your personal circumstances. When in doubt always seek professional guidance.