Your Bank Accounts

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It is no secret that Australian’s are sticky customers when it comes to bank accounts and at-call cash. How did you decide which bank account to use when you were opening your very first bank account?

• Did your parents set it up for you and as such, you used the bank they were using? 
• Was it either Commonwealth Bank, NAB, Westpac or ANZ? 
• Do you know what interest rate you are earning? 
• Did you have a dollarmite account?

We're going to come back to dollarmite accounts another day, as although they may have encouraged a lot of us to save (which is a good thing!) they are a sneaky (and scary) ploy by the big banks to capture all of us into their customer database and in many cases even actively encourage a lot of young people into applying for credit cards before they are 18 years old, which can be dangerous and highly inappropriate. Gotta love the big banks in Australia ….

However! The main aim of this topic is to get us all working our at-call cash harder.

Albert Einstein is said to have called "the power of compound interest the most powerful force in the universe."

Now we're no scientist, however we can absolutely attest to the power of compound interest being incredibly valuable and will highlight this using our own personal experiences with bank accounts (more below).

Cash is an asset class and an investment which many of us do not give a lot of focus to. It is considered as a very unsexy part of anyone's overall wealth position, however can be the easiest investment to get working harder for you with very little effort.

Before we get started, please note, if you hold all of your cash in an off-set account, we am not going to ask you to change what you are doing. This topic relates only to liquid at-call cash which is sitting in a bank account, not associated with a mortgage, redraw facility or offset account.

Whether you are saving for a home deposit, have come into an inheritance, or even have a couple hundred dollars in an at-call account, you are earning interest on any cash held in a bank account and what interest rate you earning IS IMPORTANT.

Have you checked what you are earning recently?

Now, to help walk through this exercise, we're going to use an example from a Womenomics reader's own personal experience:

"I have been a NAB customer for a very long time and up until I decided to purchase an apartment, did not pay my bank account interest rate a great deal of attention. I do not use NAB for any particular reason, it is simply the bank my parents used and their parents before them, and so here we are.

The first bank account anyone opens with NAB is usually a NAB Classic Banking account. Guess what interest rate they pay?

0.01%.

Yes. True story. Next to squat all.

Next, at some point or another, you are encouraged to open a higher interest bearing account which is usually the NAB iSaver account. Guess what interest rate they pay?

1.05%.

Better than squat all!

Did you know that if you call NAB directly, they will over you an additional 0.70% for 12 months with no terms and conditions? If you have this account, get dialing and make this change, as this is not advertised on their website and is “only available for customers that call”.

Finally, there is a NAB Smart Reward Saver account which offers 2.50% only if you deposit funds (even $1.00) each month to activate the high rate, otherwise you receive 0.50%.

So you can imagine my joy to discover that my deposit money had been sitting with my NAB Smart Reward Saver account only to realise that no one had explained to me that you need to make monthly deposits into this account and I was earning only 0.50%. See, I said this would be embarrassing for me!

Now, up until about 12 months ago, I was using my NAB iSaver account which offered 1.05% for my deposit and any additional savings, and I knew my off-the-plan apartment was going to take another 2 years until the mortgage was due to be settled, so decided to explore what other interest rates were being offered by banks in the market."

The 3 names which usually come up in discussion are ME Bank, ING Direct and UBank, so let’s take a look at each of these accounts and what they have to offer and I will then show you the impact (and power!) of compound interest.

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*ME Bank Online Savings Account*

What does it currently offer: 2.85% p.a.

What is this comprised of: 1.30% variable base rate. 1.55% variable bonus rate.

What do I need to do to establish this account: Open both your first ME Online Savings Account and an Everyday Transaction Account.

How does it work: To access the variable bonus rate, you must make a weekly tap & go payment with your Everyday Transaction Account debit card. At the end of the month, the 2.85% rate is payable. Up to balances of $250,000. You can only have ONE of these higher earning accounts.

Fees incurred on ATMs in Australia are refunded within 30 days of the transaction. No account keeping fees.

*ING Savings Maximiser*

What does it currently offer: 2.80% p.a.

What is this comprised of: 1.15% variable base rate. 1.65% variable bonus rate.

What do I need to do to establish this account: Open both your first ING Orange Everyday Account an a Savings Maximiser Account.

How does it work: To access the variable bonus rate, you must deposit $1,000 or more from an external bank account and make 5+ car purchases each month. At the beginning of the next month, provided the criteria has been met, 2.80% is payable. Up to balances of $100,000. You can only have ONE of these higher earning accounts.

Fees incurred on ATMs in Australia are refunded within 30 days of the transaction ONLY IF you are an ING home loan customer. No account keeping fees.

*UBank USaver Ultra Account*

What does it currently offer: 2.87% pa

What is this comprised of: 1.81% variable base rate. 1.06% variable bonus rate.

What do I need to do to establish this account: Open both your first UBank USaver Ultra Account and a USaver Savings Account.

How does it work: To access the variable bonus rate, you must deposit at least $200 during the month into your USaver Ultra or its linked USaver Savings account from a non-UBank account. At the beginning of the next month, provided the criteria has been met, 2.87% is payable. Up to balances of $200,000 across your UBank accounts combined.

As there is no card with this account, you cannot access this via ATMs. No account keeping fees.

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Now, based on the above I opened a new account with ME Bank and will be parking my savings in there quick-smart as soon as the account has been opened!

Assuming I hold $50,000 at-call, after 12 months, let’s look at the difference of interest rate I can expect to receive:

NAB Classic Banking (0.01%) = $5.00

NAB iSaver (1.05%) = $525.00

ME Bank Online Savings (2.85%) = $1,425.00

WOW.

With little effort on my part, the difference between where I started, to where I will be is $1,420.00 after 12 months.

Now, although I will be using these funds soon for my mortgage, imagine that I did nothing but just let the cash sit at-call for 10 years, what would the total balance be ……?

NAB Classic Banking (0.01%) = $50,045.02

NAB iSaver (1.05%) = $54,928.39

ME Bank Online Savings (2.85%) = $64,388.55

WOW.

I’ve even mapped it out as a graph for everyone to have a look at, as it’s really fun to see how it adds up year on year.

Bottom line? Have a look at your at-call accounts!

I will openly admit that setting up new bank accounts can be a royal pain in the ass at times with ID requirements and online forms etc, however it is absolutely worth it.

So! HOMEWORK FOR THIS MONTH = Review your bank accounts and make a decision about what you’d like to do about the current interest rate you are receiving and how you can improve it.