Don't let your savings account leave on a honeymoon

February 4, 2011

When the internet started an online savings account revolution, it changed the way we saved. Interest rates on these accounts have gradually increased, so it’s not surprising that recent Reserve Bank of Australia data reveals household savings mimics that of the mid-1980s.

While savers are reaping the benefits of the high rewards of online savings accounts, they are being warned to be careful of honeymoon rates.

RateCity research shows online savings account interest rates steadily began their upward climb in February 2009, in an effort for financial institutions to entice savers to deposit, as a means of recovery from the global financial crises.

As funding costs on wholesale markets are high, local banks prefer to raise their capital from deposits. This spells good news for savers as the banks tussle with one another to crown the most impressive deal.

In fact, over the past year, banks have been so eager to chase your spare cash that interest on online savings accounts skyrocketed above the cash rate by an average of 150 basis points. And since October 2010, online savings accounts rose by an average of 29 basis points, with the average rate now sitting at an inviting 5.35 percent per annum.

Make the switch
Whether you have some money tucked away or you’re making 2011 the year to save, compare online saving accounts at RateCity that can earn you a higher rate of interest than your everyday transaction account.

One of RateCity’s current best-rate online savings accounts is 1.16 percentage points higher than the average online savings account: 6.51 percent with Ubank (backed by NAB). If you were to deposit $3000 into this account and then deposit $200 each month for one year, you could save around $5400 and earn $274 in interest.

Using RateCity’s comparison tool, UBank’s USaver account leads the pack with Virgin Money‘s Virgin Saver, while Citibank’s Online Saver account comes in at a close second with 6.45 percent.

Strike while the iron is hot
While there are some deals with very appealing introductory rates such as Virgin Money‘s Virgin Saver at 6.51 percent, it has a honeymoon rate that reverts to 5.35 percent after three months.

Experts predict deals like this won’t be renewed and these increases may be short-lived.

“Financial institutions may be losing money on some of these types of accounts and it’s unlikely to be a long-term strategy,” RateCity CEO Damian Smith says.

Whether you have to maintain a minimum balance, make regular deposits or restrict your withdrawals, compare these features on online savings accounts at RateCity today and reach your goals sooner.

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