Here’s Why Choosing Your Savings Account Actually Matters

Now that you’re earning a bit of money for yourself, it’s a great idea to look around and see if there’s a better way to keep your savings safe, and even make them grow a little. To do that, you’ll wanna start with a savings account.

Now, depending on which bank you go with and which type of account you open, there are a few differences between them that can make a solid difference to how you can save your money.
But don’t freak out! We’re going to take you through some of the classic features you’ll see in a savings account and why they’re important.

Compound interest

Kinda ironically, the best way to learn about compound interest when you’re saving is to learn about compound interest when you’re borrowing money.

If you take out a loan, based on the loan terms (the rules of the loan you agreed to)  you might be expected to pay the amount you borrowed back (called the principal), plus a percentage of that amount (the interest) on top. The interest rate is how much of the principal you would have to pay back. It’s usually measured out per annum, meaning over a year.

When you’re dealing with compound interest, that interest gets stacked on regularly and gets added to the principal for the next time around. That means that if you didn’t make any loan payments, the amount that you would have to pay back would grow, and the amount that it grows by would grow as well.

Think of it like a snowball running down a mountain that grows bigger and faster - the bigger it gets and the faster it goes, the more snow it picks up, making it grow even bigger and faster over time.

So why are we talking about loans? A way to think about your savings is that you’re lending the bank money, which it then uses to loan out to other people or businesses. As a reward for lending them your money, you earn interest in that account.
Some banks will have a variable interest rate, which means that depending on certain conditions such as depositing money in your transactions account, you can earn extra interest on top.

Other banks might only have a high-interest rate if you don’t withdraw money from that account - so it’s worth thinking about whether you will be tempted to dip into your savings all the time (be honest!).

There can also be introductory rates, where you will get a higher rate for a set amount of time before it changes to a lower interest rate. This could be good if you know when you’re going to withdraw your money.

Fees & Penalties

This one won’t be as long, we promise. Some banks may charge fees for the account on a monthly or yearly basis. This is where you might need to do a little calculating to see if an account is worthwhile for you.

If you’re earning plenty of interest, you might earn more money than if you went with a no-fee account that had a lower interest rate. Or, you might find that the fees are costing you more than the interest you’re earning, meaning your savings are actually going backwards. If your account balance goes below zero, you could end up having to pay a fee.

There are a few extra bits and pieces that we go over in our short course Fin-Lit, but the main thing to look out for when going through the fine print is anything that will help that savings snowball grow faster, such as a high-interest rate - or will slow it down, like fees or other conditions. Then it’s up to you to weigh them up and make a call.

If you’ve finished this and can’t help but wonder why you never learned any of this in school, we 100% agree. That’s why we’ve teamed up with Westpac to bring you Fin-Lit, our super-short course all about spending, earning and saving your money. Take a look over here!

The following content has been created by Year13 in conjunction with Westpac as part of a paid partnership. The information is general advice only, does not take into account your personal circumstances and you should do your own research and seek advice before acting on this content.