If you’re looking to start saving your money, it’s important to know the right way to do it. Every year, Australians make mistakes that could cost them thousands of dollars over several years. When building a savings account, you want to be sure that you’re generating as much money as possible. After all, this is the point of a savings account.
Interest Rates
Of everything you see on this list, nothing will surpass interest rates in terms of importance. The reason interest rates are so important is that this is how your money will grow over time. When you’re looking for a savings account, you want to find one with the highest interest rate possible. In Australia, the average savings account has an interest rate of 0.88%. However, it’s not uncommon to see rates as high as five percent.
The higher the interest rates on your account, the more money you’ll have in the long run. This is because your money will grow at a faster rate, allowing you to reach your financial goals much sooner. While one percentage point might not look like much now, it will accumulate to a huge difference over 10, 20, and 30 years.
Transaction Fees
Another important factor to consider when building a savings account is the transaction fees. Many banks will charge you a fee every time you make a withdrawal from your account. These fees can add up over time, eating into your savings. Look for an account that doesn’t charge transaction fees, or at least has a very low fee.
On the other hand, some accounts offer a higher interest rate so long as you don’t withdraw more than a handful of times per year. If you’re unlikely to touch the money in your savings, look for accounts with this benefit. For example, you might get an interest rate double normal accounts if you only withdraw three or fewer times per year.
Minimum balance
Many banks will also require you to maintain a minimum balance in your account. This can be as low as $25 or $50, but some banks require hundreds or even thousands of dollars. Obviously, you don’t want to keep more money in the account than you need to, so try to find a happy medium. If you’re saving as much money as possible, this probably isn’t going to cause any issues.
Inflation
Sadly, the purchasing power of your money isn’t going to stay the same. Inflation will slowly eat away at it, meaning that $100 today won’t buy you the same amount of goods or services in a year. This is why it’s important to try to find accounts that offer high-interest rates. This way, your money will at least grow at the same rate as inflation, if not faster.
Over time, you might find that the rising cost of living means that you can only put away $200 per month rather than $400. With this in mind, flexibility with a savings account is also important. Many accounts will let you make additional deposits or withdrawals without penalizing you, so it’s worth looking for one of these if you think your circumstances could change. Thankfully, Cashify and similar loan companies make it easier to meet the changing demands of life with dedicated loans.
When trying to build a savings account, the most important factor is to be disciplined. This means setting up a budget and sticking to it, no matter what happens. Once you have a budget in place, you can work out how much you can afford to put into savings each month. It’s important to remember, though, that life is unpredictable and there may be months when you have to dip into your savings!
