Moving to an Online Savings Account

If you are looking for a more flexible but high-yield deposit account, an online savings account could be an attractive option. When you compare savings account products, it becomes obvious that an online savings account gives you the satisfaction of higher interest earnings and the convenience of having your money available anytime you need it.

Until January 2009, online savings accounts offered rates of 8 per cent or higher during a promotional period then reverted to about 7 per cent or so afterwards. Things changed in April. With the historic lows in the Reserve Bank of Australia’s official cash rate, there has been a corresponding decrease in yields for online savings accounts to about 4-4.75 per cent. But after you compare savings account interest yields, online savings accounts still come out on top. This higher yield comes together with other advantages you get from online savings accounts including:

• Convenience, since you have real-time, all-the-time access to your cash and you don’t need to line up in a long queue
• Less cost, since it is cheaper to transact online than over the counter at the bank branch.

While there are definite advantages you get in an online savings account, it is important to know how they work and what restrictions exist, if any.

In principle, the online savings account in one bank can link up to any transaction account you keep at any other bank. But you’ll need to compare savings account policies among banks. The big banks and several other operators require both the transaction account and the online savings account to be with the same bank.

Since the two accounts are linked, it is possible to transfer money between them. You will be asked for transaction passwords to ensure the authenticity of the transfer. If the online savings account is in a separate bank from the transaction account, it may take a day or so for the transfer to be completed. When the two accounts are in the same bank, the transfer is instantaneous.

As you compare savings accounts, you also need to watch for special conditions to qualify for the bonus rates offered in the online savings account. With some banks, it is necessary to deposit a minimum amount each month, otherwise you forego the bonus rate and only the normal rate will apply. The idea really is for you to build up your savings. The online banking facilities enable you arrange regular transfers of a pre-set amount from the transaction account to the online savings account.

There may also be limitations on the number of withdrawals you can make – very often, no withdrawals are allowed. If the transaction account and the online savings account are in one bank, the balance in your online savings account will count as part of the minimum balance needed to qualify your transaction account for exemption from fees.

Keep your eyes sharp for how long the bonus rates will last. Some high bonus rates on offer may run for only three months; others may last only one month. You’ll need to check the normal (basic) rate to see if it’s worth the trouble.