What banks are paying the highest interest on savings accounts?

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Savings accounts with high interest rates

These accounts offer a higher interest rate when you meet a couple of account conditions, such as making regular deposits. Compare some of the best high interest savings accounts in the market below.

What is a high interest savings account?

It's a savings account that pays a higher interest rate than a standard account. Because these accounts offer a higher interest rate, there are usually a few conditions to meet to earn it. For example, you might be required to deposit a minimum amount each month or limit your withdrawals from the account. A regular savings account, in comparison, will offer a lower interest rate on your balance each month, but there usually won't be account conditions to meet.

Is now a good time to open a high interest savings account?

Yes, now is a good time for people trying to save. Over the last few years savings rates have been at all-time lows, driven by a historically-low cash rate. However the cash rate has been lifted 8 times already this year, with the latest lift in December bringing the cash rate up to 3.10%. Because of this, we've seen many savings accounts increase their rates as a result and they're still going up now.

This time last year there weren't many accounts offering much higher than 1.5% p.a., but now there are several accounts paying 3.5% p.a. or even 4%.

Standard variable rate vs maximum bonus rate

You'll notice a few different rates when you compare accounts, here's what they mean:

Benefits of a high interest savings account

• A higher interest rate helps your savings grow faster.

Compared to an everyday transaction account, which usually pays no interest, and a standard savings account, which won't pay much interest, a high interest account can help you grow your savings faster.

• Your money is safe.

Your savings are protected by the Australian government under the government guarantee scheme. Most banks and financial institutions are included in the scheme, which means eligible deposits are insured up to $250,000 per person, per institution.

• You can access the money at any time.

The money in your account is your money, and it's readily and easily available whenever you need it. Unlike a term deposit, which locks your funds away, you can move the money from your high interest account into your everyday bank account to spend it within seconds of needing it.

• It's a good incentive to save.

Because you often need to deposit money regularly in order to earn the high interest rate, these accounts are a great incentive to save money. They can also be a good motivation to keep your money in the account earning interest rather than spending it on day-to-day items and impulse purchases.

• There are no fees.

Savings accounts don't charge any account-keeping fees, and there are no fees to add money into or move money out of the account.

• Rates are going up right now!.

Cash rate has increased 8 times this year. The recent increase in December for the cash rate, means the new cash rate is 3.10%. The good news for savers is savings rate will increase because cash rate has increased. Because savings accounts have variable rate, when the interest rate on your savings account goes up, it'll automatically be applied to your account and you stand to earn more interest.

How to compare high interest savings accounts

There's more to consider than just the high interest rate. Think about the following when you compare accounts:

• Is the interest rate competitive?
• Can I meet the monthly deposit requirement every month without putting myself into financial stress? If you can't, consider an account with a smaller monthly deposit condition.
• Is it important to me that I keep my existing everyday bank account? If yes, consider a savings account with that same bank.
• Is the high rate for an introductory period only (e.g. for the first 4-5 months)? If it is, will I be happy to change accounts again after this?
• Am I able to make withdrawals from the account if I need to without losing my interest that month?

🔥 Quick tip when picking a savings account

Alison Banney, Finder's banking editor

"A high rate is important, but it's not the only thing to consider. The savings rate on my own account isn't the highest in market (although it's certainly one of the best!), but it has monthly deposit conditions I can easily meet and is linked to an everyday bank account with the same bank, which I find really helpful. If you can't meet the account conditions each month there's little point opening the account, because you won't earn the high rate anyway."

Which bank offers the highest savings rate?

Currently the highest rate you can get is 4.75% with a Bank of Queensland Future Saver account. This is a great rate, however there are a few conditions to meet. Read our full Bank of Queensland Future Saver review.

If this account doesn't suit you or you're not eligible, here are another 5 top savings rates for December 2022.

Top 5 high interest savings accounts

How do high interest savings accounts work?

Here's how you access your money, how interest is applied and the conditions you might need to meet.

How is interest earned?

Savings accounts with a higher interest rate will offer a bonus interest rate on top of the base interest rate each month that you meet the account conditions. This gives you the chance to earn extra interest each month. A standard savings account, in comparison, will usually only offer the standard base interest rate with no option to earn extra interest.

Compound interest

The money in your account benefits from compound interest that is calculated daily and paid monthly. Compound interest allows you to earn interest on your interest, helping your money grow quicker.

For example, let's say your balance was $10,000 and you earned $100 in interest during the month. The following month, interest would be calculated on your full balance of $10,100 (that's your original balance plus the interest earned last month), so you'd earn even more interest the second month. So technically, you don't even need to deposit money regularly for your savings balance to grow.

Accessing your savings

You generally link a savings account to your everyday bank account, usually with the same bank. This allows you to easily move money back and forth from your savings account to your everyday bank account when needed. This is handy, as savings accounts don't come with a debit card to access your money (but bank accounts do). Although you can't spend the money in your savings account using a debit card, you can still access it almost instantly by transferring it to your bank account and spending the money from there.

Conditions to meet

As we said earlier, in exchange for a high interest rate on your savings there are usually a few account conditions you need to meet. This varies from bank to bank, but most accounts require you to regularly deposit money and keep growing your balance (which is a good thing if you're trying to save!).

High interest accounts usually require you to meet one or several of these conditions:

• Open an everyday bank account with the same bank and link your high interest savings account to it
• Deposit a set amount of money each month, from as little as $20 with the MyState Bank Bonus Saver Account or as much as $2,000 with the Virgin Money Boost Saver account.
• Make a certain number of transactions each month from the linked bank account (usually 4-5 transactions per month)
• Grow you balance each month
• Limit your withdrawals or make no withdrawals at all

Some accounts will ask you to met just one condition, while others will ask you to meet a few.

Variable interest rates

Savings accounts all offer variable interest rates. Similar to a variable rate home loan, a variable savings rate means it can change at any time, if the bank decides to do so. The opposite of a variable rate is a fixed rate, which is offered on term deposits. A fixed rate doesn't change and is locked in for a set period of time.

The increase or decrease of the cash rate influences the variable interest rate. During 2020 and 2021 most banks dropped their savings rates, as the official cash rate was so low. The RBA has lifted the official cash rate again for the 8th time in December, this means variable rates have increased for savings accounts.

Fees and charges

These accounts typically have no account-keeping fees and no regular charges. The account is designed to help you save money, not get eaten away by fees. However, in order to access the money, you'll need to link the account to an everyday spending or transaction account, which might have fees and charges.

Is your money safe?

A savings account is one of the safest places to keep your cash. This is because the money in account with an Australian bank is protected by the Government's bank guarantee scheme. Under this scheme, your deposit up to $250,000 is guaranteed by the Government, even if something were to happen to the bank.

Another reason why these accounts are so safe is because your balance will never go backwards if you don't make withdrawals. Unlike investing in shares which could see you lose money if the share price falls, the money in your savings account can't fall or go down unless you decide to spend it.

High interest savings accounts vs standard savings accounts

High interest savings accounts offer better interest rates, but with more conditions attached. If you're looking for a set-and-forget option without having to meet any ongoing conditions, a standard savings account still offers some level of interest but without any effort on your end.

Let's take a look at some high interest savings accounts and regular savings accounts from the same bank, so you can see the difference.

Tips and traps

Here are some tips to help you choose the right account for you and some traps to avoid.

Tips

• Make sure you're comfortable with the account conditions. If you can't realistically meet the account conditions each month, you won't earn the high interest rate so it defeats the purpose of opening that account.
• Switch accounts constantly. To ensure you are always earning the highest rate, you could continually switch savings accounts after the introductory period ends.
• Compare accounts regularly. Unlike some other financial products, savings accounts are constantly changing their rates. This means you might have the highest rate one month but not necessarily the next.
• Look at the variable base rate too. Don't just look at the headline rate – the variable base rate is what you'll earn if you can't meet the account conditions one month, so make sure to check what this rate is too.

Traps

• Introductory offers are for limited times. If you open an account that offers a high introductory rate for a few months, don't forget that this rate will drop after the introductory period ends. It's a good idea to set yourself a reminder to compare savings accounts again after this period.
• The account conditions might be too difficult to meet. To find the best savings account, you can't look at the interest rate without considering the account conditions. Some accounts will require you to deposit $2,000 or more each month to earn the high rate, which may be difficult to meet if you're a casual worker, you work part time or you're in the gig economy.
• The linked transaction account might have fees. High interest savings accounts will often require you to also open a transaction account with the same bank, and this account might come with fees and charges.

How do I apply for a high interest savings account?

You can open an account online in a matter of minutes. It's free and easy to do and requires little effort or paperwork. Once you’ve clicked through to the bank's secure application page, you will typically need to provide the following:

• Your personal details such as full name and contact information
• Your tax file number
• Documents to verify your identity and age, like your driver's licence or passport

Once you've finished the application form and the bank has verified your identity, your account will be opened and you'll be able to start transferring money into it and earning interest.

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FAQs on high interest savings accounts

Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds.

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