Now’s a good time to remember the basics of earning interest, suggests CommBank personal finance expert Jess Irvine. “Interest rates were low for a long time but now they’ve risen again and offer a low-risk way for you to grow your money.” Of course, it’s not always as simple as putting money in an account and leaving it – although that’s a good start. Here are some easy ways to make your money work harder.
Look for offers
If you’re not sure what you want to do with your savings or there’s a chance you need to spend some of it, a high-interest, ‘at-call’ consider a savings account. It always pays to look for the highest interest rate available, including introductory offers. For instance, CommBank’s NetBank Saver has a higher interest rate for the first five months (so long as it’s your first time opening a NetBank Saver) and you’re able to add or withdraw money without impacting the rate.
Embrace compounding
Savers who manage to leave their money untouched for long periods of time really win the compound interest game. Put simply, this is the interest earned on your interest. For example, if you save $1,000 and earn interest at a rate of 2.5% over 10 years, you would have $1,280.08 interest, compared with $1,250 when you only earn simple interest (when you only earn interest on the amount you put in savings, at a set rate). Compound interest is usually calculated on your balance daily, then paid into your account each month.
Watch out for penalties
If you’re a consistent saver, there are savings accounts (like CommBank’s GoalSaver) that reward you with higher interest if you add to the amount in the account each month, no matter by how much. If you don’t save each month, you’ll earn a lower rate – so there’s quite a large incentive to contribute regularly. “This type of account suits consistent and long-term savers,” says Jess.
Save in your offset
If you have an eligible home loan, try linking your loan to an offset account and treating it like a savings account. You can withdraw money when you need to, but the real advantage is that any money in that offset account reduces the interest you’re charged. This means that in the long run, you can shorten the term of your mortgage.
Get your kids in the game
Encouraging teens to open a savings account helps them build good habits. “It will also ensure they start earning interest early,” says Jess. CommBank’s Youthsaver account is for under 18s who will earn a better interest rate if they save monthly.
Consider a term deposit
Term deposits allow you to secure an interest rate as a reward for locking in a lump sum for a set period. The upside: no matter what happens with interest rates, you know what you’re earning. Say you put $20,000 in a term deposit earning 4.25% from August 2024 to August 2025. You’d earn $850 in interest. The catch? You can’t top up the term deposit and if you take money out early, you may forfeit some of the interest earned and pay a break fee.