What is an online savings account?
Online savings accounts are non-transactional accounts, meaning you can’t directly withdraw your funds. The account must be linked to an everyday account, and funds can be transferred across when you need them.
Online savings accounts are high-interest, and most banks have an option that includes no minimum monthly deposit, zero account keeping fees, and no penalty on withdrawal of funds. Typically, access to services (including transfers) is limited to online and phone banking.
Damian Smith, CEO of RateCity, warns that whilst online savings accounts may not attract account-keeping fees, the transactional account they are linked to might. Some banks do not allow your online savings account to be linked to an outside account, so you will need to look at the bank’s everyday accounts before opening your online savings account, to avoid being overcharged.
What should you look for in an online savings account?
YMM compared the interest rates and features of 10 online savings accounts offering no minimum monthly deposit, zero account keeping fees, and no penalties on withdrawals. If you are willing to forego these features, you can access a higher interest rate.
You should look for a high variable interest rate combined with a high introductory interest rate. For example, the Rabo Direct High-interest Savings Account offers a variable interest rate of 5.40% p.a. and an introductory rate of 6.01% for the first six months, while the St. George Maxi Saver offers a much lower interest rate of 4.30% p.a. and an introductory rate of only 5.50%-5.60% (depending on which state you live in) for the first four months.
You should also check the fine print to see if your savings account can be linked to a transactional account from an outside institution. The top five high-interest earning accounts – Rabo Direct, HSBC, Citibank, Bankwest, and ING Direct – all offer this option.
If branch access is a deal-breaker, you may be forced to go with one of the lower-ranking big banks. Keep in mind that Commonwealth Bank, ANZ, and NAB require transfers to or from your online savings accounts to be actioned online. Once funds have been transferred from your account, branch and ATM access is dependent on the features of your linked account. St. George and Westpac offer over-the-counter deposits and withdrawals, but fees apply.
How does the Maxi Saver compare?
St. George claims the new Maxi Saver account is different from other online savings accounts because it offers branch access to your funds.
“For certain kinds of people, particularly older savers, physical branch access is an important service,” says Mr. Smith.
While deposits are free, withdrawals will incur a $2.50 “staff-assistance” fee. The Maxi Saver is marketed as a high-interest account, with a variable interest rate of 4.30% p.a. and an introductory rate of 5.50%-5.60% for the first four months. However, this rate falls well below the rates offered by Rabo Direct, HSBC, Citibank, and Bankwest, even after promotional offers are taken into account.
The St. George Maxi Saver must be linked to a St. George transactional account, meaning you have less control over account keeping fees. The St. George Freedom Account, for example, attracts a $4.00 fee on all periodical payments coming out of your linked account.
If you require branch access, and are willing to pay $2.50 per withdrawal, the St. George Maxi Saver is your best option.
However, if you are happy to forego branch access and do your banking online, you should skip the St George Maxi Saver and go with a predominantly online institution such as Rabo Direct, HSBC, or Citibank. Keep in mind these options allow linkage to any transactional account, so you can customise your branch and ATM needs that way.
-- By Rebecca Cleaver