Most households will probably have at least one transaction account for everyday expenses – withdrawing cash, writing checks and using the ATM. While they offer convenience, transaction accounts also charge higher fees.
Therefore, families with surplus cash or who wish to boost their savings should look into putting their money in bank accounts that yield high interest. Here’s a quick look at some of them.
Fixed Term Deposits
Term deposits can be fixed for various durations, from as short as seven days to as long as five years, depending on the depositor’s requirements and eligibility. Generally, the longer the term and the more money invested, the higher the interest rate. Term deposits are especially useful when interest rates are high as the fixed rate will protect the savings against possible lower interest rates in the future. However, a penalty will be charged if the money is withdrawn before the term is up.
Online Savings Accounts
Online savings accounts are high interest bank accounts too, but unlike fixed deposits, they allow account holders to withdraw money without restrictions. In general, an online savings account gives a much higher interest rate than a normal savings or transaction account. It’s a good place to park money and earn interest while waiting for other better investment opportunities to come by. Plus, money can be easily accessed when needed without penalty, as an online savings account is often linked to a transaction account, allowing money to be transferred and withdrawn quickly when needed.
Do note that the interest rates are variable and not fixed, meaning that they may go up and down. So online savings accounts holders will benefit when interest rates are up and similarly affected when they drop.
Cash Management Accounts
Like online savings accounts, cash management accounts offer high interest rates but like transaction accounts, they also charge the same transaction fees as a standard bank account. Those who opt to invest their money in a cash management account should refrain from using it like a transaction account to make sure the fees don’t negate the interest earned. Usually, an initial investment amount of $2000 or more is required to open a cash management account. A minimum withdrawal amount may also apply.
Cash Management Trusts
A cash management trust is more like a managed fund, not a bank account. Like shareholders, cash management trust investors are issued a prospectus from the company providing the product. These trusts are extremely useful for families who want to save a home deposit quickly as they pay high interest rates, are flexible and generally safer than shares. However, they also charge a management fee.
Families who wish to boost their savings and income can consider opening high interest bank accounts. These include fixed term deposits, online savings accounts, cash management accounts and cash management trust.
Found this article useful? Read also Choosing the Right Bank, Banking Options for Families and Using Bank Accounts Wisely.
References:
Understanding Money Website - Saving
Westpac Bank. “7 Ways to Save with Confidence” in Smart Money Moves newsletter. Issue 01, 2009
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