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Which Type Of Bank Account Is Best For Everyday Transactions

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Whats The Difference Between A Bank Account And Savings Account

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Bank accounts tend to have lower interest rates than savings accounts . However, they’re often more flexible, allowing you to withdraw funds and transfer money between your own accounts or to other people.

Typically, people have both a transaction and a savings account, so they can keep their savings separate from their everyday funds. This lets them spend money through their everyday transaction account while earning higher interest on the funds stashed in their savings account.

Most Common Types Of Bank Accounts

10 Min Read | Sep 27, 2021

Not every type of bank account is created equal. Some may not require a minimum balance or charge feeswin! While others may penalize you if you take money out at the wrong time. Basic checking and savings accounts are a great starting place for everybody. And then from there, you can branch out into different types of bank accounts where your money can really start to add up.

Do The Best Savings Rates Always Come With Conditions

To supersize your savings, you can look at earning higher interest with bonus saver offers. These generally require you to fulfil certain criteria such as meeting minimum monthly deposit conditions or making no withdrawals, but if you get an extra 1% interest for doing this it will be worth it.

Before signing up for one of these accounts it’s important to be realistic about your savings goals. If you don’t think you’ll be able to meet conditions on a regular basis you’ll likely be better off looking for an account that pays a decent base rate of interest with no strings attached.

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What Is Recurring Deposit Account

A recurring deposit account is a type of bank account that has fixed tenure. This means that the account holder should invest a fixed amount for a fixed period. Depending on the bank, the money is usually invested every month or once per quarter until it reaches the fixed maturity date. The term ‘recurring’ itself refers to something that is occurring repeatedly or periodically. Once the account has been opened by agreeing to the specific tenure and the amount to be invested, the account holder cannot change RD’s tenure or the amount to be invested from time to time.

An RD account also provides interest at a fixed rate for the invested money with the same interest rate as Fixed Deposits . Unlike FDs, where a holder has to invest lump-sum amounts, the sum that needs to be invested in RDs is comparatively smaller and more frequent. In the case of premature closure, some penalty is charged in the form of a reduced interest rate. The interest rate may vary from bank to bank, depending on the bank policies and investment tenure. However, it most commonly varies between 3.5% to 8.5%.

The maturity period for a recurring bank account is commonly classified into the following three types:

Short-term Tenure: The maturity period ranges from 6 months to 1 year.

Medium-term Tenure: The maturity period ranges from 1 year to 5 years.

Long-term Tenure: The maturity period ranges from 5 years to 10 years.

The following are some other features of the Recurring bank account:

The Value Of High Apys

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When you put your money in an account that earns above-average interest, you can grow your balance faster over time, without extra effort. This may not be a large factor for checking accounts though some do earn interest because they are designed for spending and not necessarily for growing large balances. But savings accounts are meant to grow, so it is important to maximize the annual percentage yield.

The average savings account APY is just 0.06%, but some banks and credit unions offer much more than the average. The best savings accounts have rates around 0.50% APY or higher.

You can see the difference a higher APY makes. Say you deposit $5,000 in an account that earns 0.05% APY. After a year, that money earns less than $3. But if you deposit that cash in an account that earns 0.50% APY, you would have about $25 after the same time period. A high APY may not make you rich, but it does mean more money for no extra effort.

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What Is The Australian Government Deposit Guarantee

The Australian government set up the Financial Claims Scheme to protect deposits in savings, bank accounts and term deposits, up to $250,000 per customer per Authorised Deposit-taking Institution. All Banks, credit unions and financial providers listed on Mozo are part of the scheme. The scheme is set up to protect Australian consumers so if their bank was to fail, up to $250,000 would be paid out.

Will I Get Taxed On The Interest I Earn

Yes, the Australian Taxation Office requires all Australian residents to declare any interest they receive as income. The amount of tax you’ll pay will depend by your overall taxable income. If you do not give the bank your tax file number when you sign up for your account, the bank will withhold the amount you earn and send it to the ATO.

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Travelling And Overseas Payments

When it comes to going overseas, you’ll usually be able to use your bank account to withdraw money from foreign ATMs. And if you’ve got a debit card with Visa or MasterCard you’ll also be able to make purchases.

Most banks will charge you a foreign exchange margin on overseas transactions which is usually a percentage and for ATM withdrawals there is often an overseas fee. This will be in addition to any fee that the overseas ATM operator charges.

In recent years as more and more Australians travel and make day to day online shopping transactions, there are now a number of banks that do not charge overseas fees. You can try Mozo’s debit card fee finder too to see what the likely fees will be for any bank account listed in our database.

Scotiabank Student Banking Advantage Plan*

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The Scotiabank Student Banking Advantage Plan is an attractive no-fee account for students that sweetens the pot by earning you your choice of SCENE or Scotia Rewards points on your debit purchases. This means that for every $5 you spend, youll get 1 point in either program, essentially monetizing your everyday spends. While the earn rate isnt as good as youd get through a credit card, its a nice extra to have, especially on a no-fee student account. The welcome bonus of 5,000 SCENE or Scotia Rewards points, if you sign up before April 30, 2021, is worth around $50, depending on your choice or redemption.

The nuts and bolts of the plan will make many students happy: no monthly fee, unlimited debit transactions and Interac e-Transfers, overdraft protection, access to a massive network of over 4,000 ATMs. The Scotiabank Student Banking Advantage Plan offers up a lot of perksall for free.

  • Monthly fee: None, as long as youre enrolled in a post-secondary institution
  • # of transactions: Unlimited
  • Interac e-Transfers: Unlimited
  • Extras: Earn SCENE or Scotia Rewards points on debit purchases free paperless or paper statements Apple and Android mobile banking apps
  • Service charges: None

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How Will You Use The Account

If you plan to use the account to pay your day-to-day bills, a checking account is the best choice. You can make as many transactions as you want, and you can use checks and debit cards for purchases.

For an emergency fund, which will spend most of its time sitting and gathering interest except when you dip into it to cover an unexpected expense, a savings or money market account is a good choice.

And if you want to squirrel away a sum of money you wont need for several months, or even several years, and let it grow as much as possible, then a CD could be a good choice.

How To Open A Bank Account

Here’s how to open a new bank account online in 5 steps:

  • Compare. Compare bank accounts using the table above and find the right one for you.
  • Apply online. Once you’ve chosen one, click “Go to site” to complete the online application.
  • Add your details. Fill in your name, age, address, contact details and residency status.
  • Verify your identity. Once the bank has verified your identity with your driver’s licence, passport or other forms of ID, your account will be opened instantly.
  • Fund your account. Transfer some money into your new bank account from another account or deposit cash into the account via a bank branch, ATM or Post Office. You’ll soon receive your debit card in the mail.
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    Benefits Of Money Market Accounts

    Money market accounts have the following benefits:

    1. Slightly Higher Interest

    Money market accounts dont pay a fixed interest rate. Instead, their yield fluctuates based on money market rates.

    Most of the time, these accounts pay higher interest than savings and checking accounts, but their rates arent guaranteed.

    2. FDIC Protection

    A money market account isnt the same thing as a money market fund, which is a type of mutual fund that invests in the money markets. MMAs are fully backed by the FDIC, so you cant lose your money.

    3. Check and Debit Access

    Unlike most savings accounts, money market accounts come with paper checks, a debit card, or both. However, as with a savings account, you can only make six check or debit payments per month.

    Do Savings Accounts Cost Money

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    Generally speaking, most banking providers in Australia wonât charge you to open a savings account. However, upon first opening your account, you may be required to deposit a minimum amount of money into it.

    While some banking accounts have things like monthly or account keeping fees, this is not common with online high interest savings accounts.

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    Are Introductory Savings Rates Worth It

    Some savings accounts offer higher interest rates for an introductory period of around 3 to 6 months, before reverting to a lower ongoing rate. These accounts can often look quite attractive, but as always it pays to compare the detail to make sure you don’t get stuck with a dud rate once the intro rate ends.

    Unless you plan on switching savings accounts every few months, there’s little point signing up for an account that offers a tasty 2.50% interest for just 3 or 4 months before dropping back to less than 1% once the intro period ends. If you are comparing introductory savings rates, be sure to check the ongoing rate and make sure that’s competitive as well.

    Should I Have My Checking And Savings Accounts At The Same Bank

    There are some benefits to having both accounts at the same bank or credit union. Doing so makes it easy to manage your money and make near-instant transfers between accounts. Some banks also waive monthly fees if you link checking and savings, though they may also require a minimum balance in the combined accounts.

    But, pairing your accounts has some downsides. You may not find both the best checking and the best savings accounts at the same institution. For example, banks with some of the highest savings rates dont always offer checking accounts.

    If you’re ready to maximize savings but don’t want to part with an existing account just yet, consider opening a separate high-yield savings account at a different bank. See our list of banks that are offering high savings rates this month.

    CHECKING

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    Student & Graduate Accounts

    Student and graduate accounts are similar to current accounts, but the main difference is their overdraft facility, with many banks allowing students an interest-free overdraft of up to £3,000. This benefit is also commonly offered with graduate accounts. If you open a graduate account, you might also be offered an attractive mortgage rate or benefits on other financial products with the same bank. Designed for those in higher education, student and graduate accounts typically mature into regular current accounts when you complete your course. If this is the case, its important to be aware that your overdraft may no longer be free, so you might want to pay it off before your student or graduate account becomes a regular current account.

    How Do I Calculate Interest On My Savings Account

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    Youâll notice that when comparing savings interest rates, there is often a p.a. at the end – this means per annum. Interest on savings accounts is most often calculated as compound interest – which in other words is the percentage of interest your principal balance earns over the course of a year.

    For example, if you had $1,000 in a savings account for 12 months at a rate of 1.00% p.a., by the end of the year you would theoretically earn around $10 in interest. The good news is that you can avoid spending time doing complex equations in your notebook. Check out Mozoâs savings calculator, to see how much interest you could earn on your savings stash.

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    Money Market Deposit Account

    Lets pretend a checking account and a savings account had a baby. This sweet little money baby would be a money market account. Like a checking account, a money market account might come with a debit card, although some banks dont offer this feature.

    And like a savings account, a money market account earns interest while keeping your money separate from your everyday funds. This type of bank account is a good place to store your 3- to 6-month emergency fund so that its close if you need it but out of your everyday checking account.

    Why You Can Trust Bankrate

    Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

    Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

    Our banking reporters and editors focus on the points consumers care about most the best banks, latest rates, different types of accounts, money-saving tips and more so you can feel confident as youre managing your money.

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    What Information Will I Need To Apply For A High Interest Savings Account

    When you go to open a savings account, whether you do it online, over the phone or in a branch, youâll need a few details, including your contact details, personal details and some ID. You should have some things ready, like:

    • A few different forms of identification, preferably photo ID. These can include a driverâs licence, passport, birth certificate, medicare card or a utility bill.
    • Your name, date of birth, address and contact details.
    • The details of any other account you want to link, like an everyday transaction account.

    Do Checking And Savings Accounts Pay Interest

    It

    Interest helps you grow your balance and meet savings goals more quickly. Most checking accounts do not generate interest, while savings accounts do.

    A checking account should be thought of as a transaction account. Checking accounts are not meant for building savings and, as such, do not provide supplements to saving like interest, though you may be able to find a checking account that pays interest.

    Savings accounts will almost always pay you interest. The effective yearly rate on an account is called the annual percentage yield . When exploring different savings account options, its important to look out for which accounts have the highest APY. Finding an account with a high APY will provide the most growth for your savings.

    Keep in mind that rates on savings and checking accounts are variable, so the bank may change the rate amount depending on market conditions.

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    Should I Bundle Accounts To Get A Higher Savings Rate

    Many banks now offer their best savings rates to customers who are prepared to open both a savings account and a linked everyday transaction account. They’ll encourage customers to use the linked account as their main everyday account for depositing their pay and making regular transactions, which will often be what earns you bonus interest on your savings.

    Some of the best savings rates on the market can be obtained using this strategy, but if you’re considering doing this be sure to review both accounts and make sure you’re getting a competitive deal. If you’re going to sign up for a linked everyday account, make sure it has no or minimal account fees and is competitive on things like ATM fees and overseas transaction fees.

    What To Look For

    Check that your account offers:

    • A competitive interest rate that could grow your money quickly
    • Any promotional interest rates, which may give you a higher interest rate for a limited period
    • Any bonus interest rates, which may give you a higher interest rate if you dont make withdrawals for a certain time, or if you deposit a minimum monthly amount.

    You can find out more about our savings products here.

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    How Do High Interest Savings Accounts Work

    Unlike everyday transaction bank accounts, savings accounts are designed to help you save up, so they generally come with higher interest rates and no online transaction or account fees.

    Once you park money inside the savings account, youâll be able to start earning compound interest. The highest interest rates are usually made up of a base rate and a special rate that you need to meet conditions to get, which combined, give you the maximum savings rate. Conditions could include a deposit minimum or limits on how often you can make withdrawals per month.

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