The 4 Highest-Paying Savings Accounts in Australia

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In order for you to quit your salary-based job, you need enough passive income to cover your expenses and sustain your lifestyle. When planning for passive income generation, the first and most obvious thing to do is to open a savings account.

This is the best risk-free and easy-to-manage investment. As a result of the GFC (Global Financial Crisis), the Australian government now guarantees savings accounts up to $250,000 at any bank.

It means that if the bank declares bankruptcy, the Australian government will reimburse your loss up to a maximum value of $250,000. If you have two accounts at two different banks, then you are eligible for two separate compensation claims, totaling up to $500,000.

It thus makes sense to spread your savings (and the risk!) across multiple institutions. Additionally, we are lucky enough to benefit from a high savings rate in Australia in comparison with the United States or Europe; it thus makes a lot of sense to put an investment emphasis on savings accounts at this moment.

My Favourite Savings Accounts

Below is a list of the best savings accounts in Australia to my knowledge. I have one of each of these accounts and actually move money from bank to bank depending on their promotional (high interest) offers.

The reason these accounts make my list of “best savings accounts” differs slightly for each account, but the key areas of overlap are:

1. They pay the highest interest rate on the market.

2. They pay as much as term deposits without locking your money away. This is important because it means you can move your money following a promotional offer.

3. All transactions can be done online or by phone. Not having a physical office is part of the reason why the interest rate is higher than traditional banks.

4. There is no need to have a checking account with those institutions. [Update] As of late 2014, Ubank now requires a checking account to be opened as well (USaver Ultra) to benefit from the bonus rate. However, there are no requirements to maintain a minimal balance nor make regular deposits to that account.

5. You can link any of those online savings accounts to your existing checking account at any bank. I have all of my savings accounts linked to my personal checking account at Westpac, which serves as a money transferring hub.

6. There are absolutely no fees.

7. You do not need to maintain a minimum balance to keep the account open.

8. Although the ‘brands’ under which they trade may not be well-known, they are all backed by large well-recognized banks.

Disclaimer: I do not get any commissions from any of those banks to promote their services nor do I act as a financial advisor. I am only offering one opinion so you can make up your own mind and choose the best savings account for your situation.

BankProductStandard RateBonus RateTotal RateBonus RestrictionsComments
RAMSRAMS Saver3.46%1.30%4.76%* Deposit at least $200 each month
* Make no withdrawal
* Total account balance under $500,000
The best deal on the market at the moment. Highest interest rate with no time restriction. Large maximum account balance and no drawbacks.
Backed by Westpac.
UBankUSaver3.96%0.70%4.66%* Automatically deposit at least $200 each month
* Total account balance under $200,000
Although it pays less interest than RAMS, I keep a savings account here to withdraw money with no penalty.
Backed by NAB.
RaboDirectHigh Interest Savings Account3.50%1.26%4.76%* Only available 4 months from account opening date
* Total account balance under $250,000
I transferred money in for 4 months and then out. This was before I knew about RAMS and UBank. This is a good short-term alternative if you have reached the maximum balance on your RAMS and UBank accounts.
Backed by Rabobank, top 30 largest financial institution in the world.
ING DirectSavings Maximiser3.00%1.75%4.75%* Only available 4 months from account opening date
* Total account balance under $250,000
I transferred money in for 4 months and then out. This was before I knew about RAMS and UBank. This is a good short-term alternative if you have reached the maximum balance on your RAMS and UBank accounts.
ING is the world's largest banking/financial services and insurance conglomerate by revenue.

Every Percent Matters

Understanding how a savings account grows will allow you to engage in better financial planning. Regardless of the other factors influencing your decision-making process, it is critical for you to secure the highest interest rate possible.

With compound interest and exponential growth, a small difference in interest rate can translate into a large difference in your savings income. Most people ignore promotional offers for high interest, arguing that the higher rate is not worth the time spent opening a new account and transferring money.

They could not be more wrong! It takes about 10 minutes to open a new online savings account. All you need to do is enter your personal details online, follow the identity verification process, and then transfer money online.

For instance, I have a savings account at Westpac that is linked to my checking account. It is currently paying 2.75% per annum, 2% less than my RAMS savings account. But how much difference does it make in actual dollar terms? If we assume a starting capital of $100,000, this would yield the following differences over time:

5 Years
10 Years
15 Years
20 Years
25 Years
Extra Savings
2.75% pa
4.76% pa

As you can see, in this case the ‘small’ difference of 2% results in a big difference in income! At the higher interest rate, your capital will have tripled after 25 years; at the lower interest rate, your capital won’t even have doubled.

Even if your investment horizon isn’t that long, you can see a clear pattern. Within a single year, you could earn an additional $2,000. Not bad for 10 minutes worth of data entry!

Another way to think about the gain is to compare what this means in real terms. For example, I spend about $3,000 per person on food a year. This means that if I have $150,000 in a Westpac savings account and move it to a RAMS savings account, my annual food spending would be covered!

Of course, if I have to pay income tax, I would need additional capital. However, the main point is that you need to be aware of your options and exploit them to the fullest. Reap all the benefits!

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Monkey Master

My wife and I are currently living in Sydney, Australia. We plan on becoming financially self-sufficient in 2015 so we can retire at 35. We are regular working people, trying to be smart about saving money and generating passive income. I want to share with you how we reached that decision and how we are planning towards financial independence. Continue Reading.

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