High Interest Savings Accounts
High interest savings accounts seem like an oxymoron in today’s climate where most big banks are offering “rapid” savings for as little as 0.05% interest or less. People have lost faith in bank accounts to protect their money from inflation. With inflation hovering at around 2% to 3%, it’s no wonder a lot of Kiwis are opting to invest in other ways to generate the wealth they want.
Because high interest savings accounts will struggle to keep up with the effects of inflation, they generally make for a terrible wealth creation vehicle. However despite this, high interest savings accounts may be appropriate for your more short term financial goals, such as if you’re simply needing to hold money temporarily until those funds can be used for something else.
Wherever you are in your savings journey, learn how to put your savings to good use using a high interest savings account or something similar. Discover strategies to help you protect and grow your money with help from MyFuture.
Why Consider High Interest Savings Accounts?
High interest savings accounts offer a higher interest rate on your balance than regular savings accounts. The frequently exponentially higher interest rate on these high interest savings accounts makes them a much more attractive option and can make a difference in the short and long term. The interest that accrues can compound, generating even higher returns on your deposits.
How much more interest you will accrue may depend on a combination of conditions. It’s important to stay cognisant of the varying terms on these accounts to get the most from them:
- A minimum balance may be required.
- There may be a term deposit which means you may not be able to withdraw your money for a set period.
- Your account may require you to make regular deposits above a certain amount or set up.
- Some accounts may incur a fee.
- There may be penalties for withdrawing your money from these accounts – such as losing the high interest rate premium.
In the end, a high interest savings account can pay out 20 or 25 times the national average interest of a normal savings account, making the increase in interest earnings worth taking the time to learn about how a high interest savings account can help you. MyFuture can help you determine whether a high interest savings account is appropriate for you and if there are more suitable options to achieve your financial goals.
The Interest Rate On High Interest Accounts
Usually, the interest rate offered on high interest savings accounts is a standard variable rate, so the rate isn’t fixed and can change with the market or even be vulnerable to changes made by the banks. The good thing is the interest rate is higher than what’s offered by traditional savings accounts, and while it is still unlikely to keep up with the effects of inflation, may be the best option available to you depending on your circumstances and financial goals.
As a literal added bonus, some high interest savings accounts pay a bonus above the standard variable rate as a condition for particular behaviour such as depositing a certain amount of money each month and/or not making withdrawals. Stay aware and on top of these rewards to keep your bonus rate if possible.
How Interest Works On Savings Accounts
Understanding the workings of interest rates can help investors earn money on their savings with very little risk.
The reason a bank can offer interest is because they borrow your money that was deposited to lend to their other customers in the form of loans, mortgages, or credit cards where they earn money. So why is it that some banks can pay more interest than others? Most financial institutions set interest rates based on supply and demand. For a bank, consumer savings accounts are an opportunity to take in much needed cash which they can then lend out. Offering higher interest means they’re able to attract more deposits and higher value deposits.
Most of the banks that we know well and use often don’t have to compete for your cash, you may find the smaller and privately owned banks are the ones offering higher interest rates to encourage you to save with them.
For this reason, you may not be familiar with some of the banks that offer high interest savings accounts. This is one area where our Qualified Financial Advisers can guide you to the best savings accounts with the highest return on your investment. While also being mindful of the potential credit risk default ratings of the various lenders. Even though savings accounts are generally considered one of the least riskier asset classes, there is still risk involved so it’s important you understand this before depositing savings with any particular lender.
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When Does My Savings Account Earn Interest?
When your savings account earns interest will depend on the account or the bank where your account is held. With most savings accounts you’ll earn interest daily but it is typically paid into your account on a monthly basis, but check the account terms and conditions.
What Is Compound Interest?
Compound interest in the simplest terms is interest on your interest. The money you deposit into a savings account will typically earn interest regularly. With compound interest, the interest you have earned in the past on your savings account earns interest as a part of your new balance.
Savvy investors understand how the concept of compound interest can be used to build up their savings.
When Is A Good Time To Change Your Savings Account?
It’s important to do regular research on what interest rates banks are paying. Keep in mind that banks have to cater to both savers and borrowers. If your bank offers savers good interest rates, then they may be charging higher rates on their loans, mortgages, and/or credit cards.
If you discover your bank has lower rates than others, it’s worth shopping around and you might want to take your money and move it somewhere it will ‘be appreciated.’ A lot of us don’t want to do the work to find higher interest rates and move your money, but making the right call now can make a massive difference over time.
Get in touch with the Qualified Financial Advisers at MyFuture today for a no obligation FREE Discovery Session. Let us do the hard work so you don’t have to do the guesswork. We’ll help you find the best interest rates based on your money, meet your financial goals, and help you create wealth from your well-earned savings.