Home Saving How To Make Your Savings Work Harder (And It’s Not As Easy As You Think!)

How To Make Your Savings Work Harder (And It’s Not As Easy As You Think!)

written by Shelley Marsh 15/08/2013
How to get the most from your savings account

Your savings are an investment.  They are not something that should be plonked into the same old  savings account because that is what you have always done.  You can, and should make your savings work harder.  With the latest round of interest rate cuts, interest rates are low and it is now even more important to make sure you are getting the best possible return for your savings.  “Don’t I just pick the account with the highest rate?” I hear you say.  Yes, generally speaking, but like most things it is not as easy as just that.  So here are a few things you need to look out for in choosing the best possible a savings account for your cash.

  1. What is the interest rate?  I know it is an obvious one.  The higher the better but there are a couple of tricks when looking at the rate.  Firstly, you have to be clear whether it is a bonus rate or not.  Bonus rates are an introductory offer which lasts for a period of time before the account reverts back to the regular interest rate.  The bonus period generally lasts from 3 to 6 months.  The trick is that once that period is over the difference in interest rate can be quite large.  For example one account I was looking at had a bonus rate of 4.6% but then reverted to 2.75% after 5 months!  There is nothing wrong with taking a bonus rate just as long as you know that is what you are doing and you are clear what rate the account reverts to.  In fact, you can take advantage of them then move when the rate ends if there is a better deal on offer.  Just make sure the account allows you to do this.
  2. How often is the interest paid? The trick is, the highest interest rate is not always the best as how often the interest is paid is an important factor too in determining your investment earnings.  Generally speaking the more frequent the interest payments the better off you are.  This is due to the power of compounding (click here to find out more about compounding).  So, when looking at two investments at the same interest rate, the one with the more frequent interest payments is better.  For example, a $10,000 investment at 4.7% paying interest monthly will make you $10 more interest over 1 year than the same investment paying annual interest.  It doesn’t sound like much but run that investment over 5 years and the difference is $61.  We all know every little bit helps!  Click here for a calculator to check out the impact of compounding and interest rates on your savings and to help you compare accounts.
  3. Fixed vs variable interest rates?   Most basic online savings accounts and cash management accounts pay variable interest rates.  This means that the rate of interest that you will be paid will rise and fall with changes in official interest rates.  Fixed rate investments, such as term deposits pay the same rate of interest during the term of the investment, regardless of what happens to official interest rates.  Fixing your rate is a good strategy when interest rates are falling because you lock in a rate but when rates are rising you miss out on higher rates during the term of your investment.
  4. Are you locked in?  In financial speak we call that the term of the investment.  Most online savings account give you easy access.  Term deposits lock your money away for a specified period of time.
  5. What fees are involved?  Fees eat away at your returns.  Given the low interest rate environment it becomes even more important to make sure you have a fee free account.
  6. Is there are minimum balance?  Be clear on whether the account has a minimum balance and whether you make that criteria.
  7. Other features.   Be clear on what sort of other features you would like to have on the account.  Do you want ATM access or do you want to limit access so you are less likely to raid the cookie jar :-).

So as you can see there are lots of factors that need to be taken into account when choosing the best savings account for you.  One of the best ways to compare all these factors is to use a comparison site.  These site don’t cover the whole market but they can certainly give you a good idea of what is out there and help you on your journey to get more out of your savings.

If you liked this post, you might also like:

 10 Easy Ways To Save Money

How To Pay Off Your Mortgage Faster

How Interest Rates Impact You and Your Family

How To Boost Your Superannuation Balance For Free!

* Please note this is for your general information only and does not constitute financial advice.  Please see a financial planner or accountant to get advice specific to your individual needs.

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19 comments

Amanda @ Cooker and a Looker 16/08/2013 at 8:19 am

Savings? Ahh, I remember them from pre-farm days! Great tips! 🙂

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Shelley Marsh 18/08/2013 at 2:08 pm

Hi Amanda! I am totally jealous of your farm lifestyle. It must be a magnificent place to bring up your kids! 🙂 Money Mummy

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Robomum 16/08/2013 at 8:40 am

Great tips. It’s all so straight forward when you think about it.

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Shelley Marsh 18/08/2013 at 2:09 pm

Hi Robomum – glad you liked it! Thanks Money Mummy

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Renee at Mummy, Wife, Me 16/08/2013 at 10:18 am

Great tips. I’ve been thinking about fixing for a while now.

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Shelley Marsh 18/08/2013 at 2:07 pm

Hi Renee – glad you mentioned fixing your rate. I will be writing on some of the factors to consider when making this decision next week. Stay tuned 🙂 Money Mummy

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Maxabella 16/08/2013 at 12:18 pm

Jodie from Fresh Home Cook mentioned your Facebook page as one to follow today. I’m so glad she did. Your blog is going to be one I read for hours just to catch up on. Thanks Shelley. x

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Shelley Marsh 18/08/2013 at 2:06 pm

Hi Maxabella! So glad you popped on by thanks so much! Money Mummy

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Neets 16/08/2013 at 12:32 pm

I so wish I knew as much about money as you. Our money is tied up in mortgages and we have no idea if that is the right thing to do.
Great post!

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Shelley Marsh 18/08/2013 at 2:04 pm

Hi Neets! Glad you mentioned it, I will be writing more on mortgages in the next couple of weeks! Stay tuned! 🙂 Money Mummy

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Jody at Six Little Hearts 16/08/2013 at 3:17 pm

Great advice as usual! Thanks for the tips.

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Shelley Marsh 18/08/2013 at 2:02 pm

Thanks Jody!

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Lisa - Sweet Little Pretties 16/08/2013 at 5:25 pm

What great tips! Thank you for sharing
Visiting from FYBF and Sweet Little Pretties

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Shelley Marsh 18/08/2013 at 2:02 pm

Hi Lisa, thanks so much for popping across. I am glad you liked the article. Money Mummy

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Grace 16/08/2013 at 9:47 pm

Ah, the joys of interest rates and mortgage loans! Great information and you’ve explained it in clear terms…brilliant!

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Shelley Marsh 18/08/2013 at 2:00 pm

Hi Grace! Thanks so much, I am glad you liked it. I love your blog link up every Friday at Thanks so much for hosting it every week! It is a great way to read a tonne of great blogs (yours included!) in one place! Money Mummy

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Lisa Wood 17/08/2013 at 9:59 pm

we have been doing the 10% method – where we put 10% of our money into an account, paying ourselves before paying anyone!!!

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Shelley Marsh 18/08/2013 at 1:57 pm

Hi Lisa, Yes that is totally the way to do it – pay yourself first is such a great idea! 🙂 Money Mummy

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How Interest Rates Impact You And Your Family 07/08/2014 at 6:23 am

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