The best Savings accounts in Australia for earning interest

These days banks aren’t paying very much interest on savings accounts.  It’s certainly smarter to invest rather than just save.  But a savings account is still useful – whether it’s for an emergency fund or just saving up for holiday or more expensive purchase.  So here is my roundup of the best savings accounts in Australia.

The best base rate

Most savings accounts in Australia offer two rates.  A base rate and a bonus rate.  The base rate is what you’ll get all the time for just depositing your money.  The bonus rate has strings attached.  For some banks they will offer you a great rate for 3 months or so, and then drop you down to the base rate.  Others will require you to deposit a certain amount each month to take advantage of the bonus.   So to cut through all the marketing guff, I’ll start by just comparing the base rates:

BankRate
Rabobank1.05%
AMP1.40%
UBank1.04%
Citi0.85%
HSBC0.45%
Bank Australia (Bonus Saver)0.05%

Note – I haven’t included most banks simply because they don’t offer anything near these rates.  For example Commbank offers a laughable 0.10% on their Netbank Saver.

As you can see in the base rate comparison, AMP is the winner.

The best bonus rate

Here are the bonus terms for getting extra interest:

  • UBank – You need to have a transaction account with UBank and transfer at least $200 a month into either account. Bonus rate is 2.1%
  • Bank Australia – Deposit $200 a month and make no withdrawals to earn 1.7% interest.
  • RaboBank – Get a bonus rate for the first 4 months.  Then it drops to the base.
  • AMP – Get a bonus for the first 4 months.  Then it drops to the base rate.

HSBC and Citi have bonuses for the first few months, but then the rate drops right down.  So I would stay away from them.

UBank looks pretty decent.  Although you will effectively need to change banks to them as you need a transaction account.

Bank Australia looks like a pretty good deal.  You just need to save at least $200 a month and not make any withdrawals.  The interest rate is decent and your money will only be invested in socially acceptable businesses.  i.e no more fossil fuels.

My Picks

These are just my personal picks.  Remember to do your research and find out what works for you.

Best for the Environment and Future: Bank Australia

Bank Australia only invests in socially responsible companies.  Your money won’t go into funding a new coal mine!  This is something we should all be thinking more and more about.  And should definitely be a factor in your decision making.

Best Bonus Rate: Bank Australia

I don’t like the requirement of having to have a transaction account with UBank.  So my pick of the best bonus rate goes to Bank Australia.  They only require you to put in $100 a month plus make no withdrawals for that month.  I’m not a fan of the no withdrawal requirement, as it makes this less attractive for saving for medium term purchases (like a holiday etc).  Still it’s the best of the bunch.

Best Base Rate: AMP

AMP offers the best base rate with no strings attached.  Great if you just want to save small amounts or just put a lump sum in.

Best Base Rate (and isn’t as dodgy as AMP): Rabobank

A number of dodgy things that AMP had done in the past came to light during the banking royal commission.  So if this put you off AMP as a brand then I would recommend Rabobank.  They offer a pretty good base rate.  This is perfect for people who don’t want to have to save a minimum amount each month.

Curveball – Dharma.io??

I wanted to throw in a curveball option.  Dharma is a defi product.  Aka decentralised finance.  It’s a savings account that is completely decentralised and powered by crypto and smart contracts.  Defi is going to be huge in the future, so I’m going to start dropping in these products every now and then on this blog.  While it may not be ready for the mainstream yet, that is going to change soon.

Currently Dharma.io pays interest of around 7%.  This number is constantly changing.  Behind the scenes,  interest is generated through the Compound Protocol.  This is a global network of borrowers and lenders.   Every loan on Compound is over-collateralized and secured by smart contracts.

The most impressive thing about Dharma is that it’s powered by a smart non-custodial wallet.  This means that you retain complete ownership of your funds and private keys all the time – while still earning interest.  And you earn interest as soon as your funds hit the smart wallet. Literally! you can see your balance growing in realtime.  This is really is the future of banking!

Check out this post which has full how-to guide on getting started with Dharma.

Do you need a Savings Account?

A savings account is great for a couple of things:

  • Savings up for a larger purchase (like a Car, Holiday etc).
  • Creating an Emergency Fund – you should have one of these.

A savings account isn’t as good for:

  • Long term investing

Every year, your money is worth a little bit less.  That’s thanks to inflation.  It’s the reason why your folks were able to buy a house for $100k and a cup of coffee used to cost $1.  Inflation reduces the buying power of your currency.  Each year the inflation rate varies.  Over the last few years the inflation rate varied from 1.3%-3.3%.  What this means is your money is losing value as fast or faster than you’re earning interest.  So putting money in a savings account as a long term investment is a really bad idea.

It’s better to invest in an ETF or other diversified portfolio.  These are designed to not only beat the inflation rate, but also generate wealth.  I use Raiz and Spaceship for this.

This post is for educational purposes and should not be considered as investment advice. This post is based on individual experience and journalistic research.

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