All Your Questions About Savings Accounts, Answered

November 2020 – 7 minute read

Key takeaways from this article:

Everybody’s got to start their savings journey somewhere, so it stands to reason you’ve probably got a few questions about how savings work (and how they can work for you).

From picking the right savings account to understanding financial lingo, we’ve compiled all the info you’ll need to make the most of your hard-earned cash.

What exactly is a savings account?   

Let’s get back to basics – because sometimes a little refresher is the best place to start. Your everyday transactions account is the one you use to deposit your salary and withdraw your cash whenever you need to pay the rent, bills or go shopping. Generally, you don’t earn interest on your transaction account.

A savings account, however, is where you stash your cash you don’t want to spend right now and the bank generally rewards you with interest for saving. Whether you’re saving for some new shoes, a holiday, a house deposit, or just in case, a savings account could help you reach your goals sooner.

What are the different types of savings accounts?

Generally speaking, a savings account is a great way to kick-start the journey to achieving your savings goals, whatever you’re working towards.

But not all savings accounts are created equal. There are some different options you can use to ensure you’re best placed to achieve those goals:

1. Short-term savings accounts

Short-term savings accounts are great for those things you need to do in the immediate future, like parking cash between big purchases, because they reward you with a high introductory interest rate. That means you’ll get bang for the bucks you’ve stashed away for a short period of time.

2. Mid-to-long-term savings accounts

Mid-to-long-term savings accounts are generally better for goals you’ll be working towards for a longer period of time – like travel, a home, or a rainy day fund. You may earn bonus interest for meeting certain criteria, such as making regular contributions.

What are the different types of interest rates?

1. Introductory rate

The introductory rate is a one-off interest rate offered when you open a savings account, making it great for meeting those short-term needs like parking cash between bigger purchases. It only lasts for a set period of time (generally a few months), but lets you make as many withdrawals as you like during this time without the introductory rate being affected. Keep in mind that the introductory rate is generally only offered to new customers, so you’ll only be able to take advantage of it once.

2. Standard variable base rate

A ‘base rate’ is the guaranteed interest you’ll earn so long as that account is open. Look for an account that still pays a decent base rate for those months when you may not be able to meet the bonus interest criteria.

3. Variable bonus rate

The bonus rate is the additional interest you earn when you meet certain criteria, like growing your balance by a minimum amount on a monthly basis. Think of it a reward rate for regular savings habits (and consider setting up automatic transfers so you don’t miss out!).

The Westpac Life savings account has a competitive base rate and lets you earn a sweet bonus just for growing your balance by any amount – yes, even by $0.01 – each month. This means you’re basically making extra money for little effort.

4. Variable interest rate

A variable interest rate is a fluctuating rate indexed on an underlying market rate.

How many savings goals should I have, exactly?  

We all have different savings goals. Some may be as small as a weekend getaway while others might be as big as a home deposit. Whatever your goals, it helps to separate them into long-term and short-term buckets. Not only does this organise your savings in a more effective, visual way, it allows you to gain a better understanding of how much cash you need to put aside to reach them.

To make it even easier, look for a savings account that comes with the ability to set and save multiple goals within the one account – not only can you save yourself the hassle of managing several different savings accounts, it’ll also be easier to meet the bonus interest criteria on just the one  account. The Westpac Life account allows for up to six goals with just the one account. You can name each goal and even set the amount you’d like to save for, and you can do it all in the one account.
 

So, what does that all mean?

The key is to find a savings account that gives you a competitive interest rate and eligibility criteria that’s achievable for you. If you’re aged 18-29, the Westpac Life savings account offers a 5.20% p.a. variable interest rate on savings up to $30,000*.

You can reap the benefits of that interest rate by growing your balance by as little as $0.01 per month and spending just five times per month on your debit card linked to your Westpac Choice account.