Australia’s best savings accounts: How to get a 5% return on your money (2024)

How about some good news for a change?

Get this: there’s a whacky new trend where you can put money in the bank, and they actually pay you a decent rate of interest! What a concept!

According to data from the Reserve Bank, the average “bonus” interest rate paid to customers with $10,000 in a savings account hit 3.95 per cent last month – the highest rate since 2013.

And on Friday, the Bank of Queensland became the first bank in Australia since that time to offer a savings account with a “5” in front, paying 5.15 per cent interest on its “Future Saver” account.

There’s a catch, though. Several, in fact. As is the case with most of the “bonus” saving accounts on offer, savers must jump several hurdles before pocketing the full rate.

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For starters, you must be aged 14 to 35. You must deposit $1000 into a linked transaction account every month. You must also make at least five eligible transactions – such as a direct debit, cash withdrawal, BPAY or purchase using your linked debit card – each month. Phew.

If you fail to jump through these hoops every month, you’ll only be paid a paltry 0.05 per cent return on your money.

Oh, and did I mention the 5.15 per cent only applies to the first $50,000 deposited? After that, a rate of 3 per cent applies to any savings between $50,000 and $250,000. And after that? Peanuts.

Still, despite the convoluted nature of some offers in the market, savers are – for the first time in a decade – finally back in a position to earn attractive returns on their money.

It’s no accident. Higher savings rates are, in fact, a key way in which the Reserve Bank’s interest rate medicines help cool the economy, and inflation. Yes, borrowers get squeezed to stop them from spending. But savers – including younger people and retirees – are also encouraged to sock more money away into their savings accounts rather than spend it, helping to sap demand out of the economy.

For young Australians saving for their first home deposit, higher savings account rates are great news.

Bigger picture, rising saving rates mark the end of a rather scary period in our recent history when savers and investors as a whole were so desperate to find a safe place for their cash, they were willing to accept almost 0 per cent return on their money and even, in some countries, PAY interest to banks to hold their savings (the phenomenon of “negative interest rates”). Now that was whacky.

We are all so much better off that we do not inhabit that perilous financial world any more. Higher savings rates are yet another sign we are returning to our much longed-for “normal” – albeit with a rough adjustment period still to navigate.

As a parent, I’m excited to be able to start teaching my young son for the first time about the joy of earning interest on your savings. It was a hard concept to sell when savings rates were a piddling 0.1 per cent.

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For young Australians saving for their first home deposit, higher savings account rates are great news, relieving pressure many have felt to park short-term funds in the volatile sharemarket to have any hope of seeing a return on their savings.

Yes, shares may still be a tax-effective option for savers with a longer savings timeframe (you get taxed at your full marginal tax rate on bank interest, while shares attract tax breaks) but earning interest by parking your money in a bank account paying 5 per cent is nothing to be sniffed at.

The good news for those of us over the age of 35 is that Tuesday’s expected rate hike will likely push a few more savings accounts above the 5 per cent threshold. You only need to wait and watch for a few days or weeks.

Meanwhile, here are some of the best online savings accounts to keep an eye on, now paying ongoing high rates of interest with no time-based “intro offers” and no age criteria, as assembled by RateCity.com.au:

ING Savings Maximiser: paying 4.8 per cent on balances up to $100,000, IF you deposit $1000, make five purchases and grow your balance each month. If not, you get 0.55 per cent.

MOVE Bank Growth Saver: 4.75 per cent on balances up to $25,000, IF you deposit $200 a month and make no withdrawals.

Great Southern Bank Home Saver: 4.65 per cent on up to $100,000, IF you deposit $2000 a month and do five eligible transactions.

Virgin Money Boost Saver: 4.60 per cent on up to $250,000, IF you deposit $2000 and perform five eligible transactions each month and also enable a “lock feature” under which you have to give 32 days’ notice to access your cash.

Savers with mortgages will still likely be better off parking any spare cash in a mortgage offset account, where possible, to reduce their home loan interest payable. Where that is not possible, including for the league of borrowers on ultra-low fixed-rate loans (which usually offer no offset account and restrict early repayments), it could pay to investigate some of these high savings rates on offer for any spare savings.

Even if you don’t switch to one of the smaller banks, know that all four of the big banks now offer bonus savings accounts with a “4” in front.

So make it your task this weekend to ensure any savings you have are working for you. It’s possible that you may have your money sitting in an older style account paying no bonus rate of interest. So go check now and may the savings rates war begin!

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circ*mstances before making any financial decisions.

Jessica Irvine is author of Money with Jess: Your Ultimate Guide to Household Budgeting. You can follow more of Jess’ money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.