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• Introduction - Get smart about everyday banking & saving
• Banking basics
• How do I know what type of bank account I need?
• How do I choose the best bank account for me?
• How do I open a bank account?
• How can I access & use my bank account?
• How can I make the most of my bank account?
• How can I minimise the cost of banking?
• How can I increase my savings?
• Where to go for more info?
• All that jargon - a glossary of terms

Important Notice

This booklet gives information of a general nature and is not intended to be relied on by readers as advice in any particular matter.

You should consider consulting a financial adviser regarding how this information may apply to your own circumstances.

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Most banks offer a range of products to help you manage your money on a day-to-day basis and save a little along the way. Before you can decide which bank account is right for you, first you need to know what’s on offer.

Let’s start by looking at the typical bank accounts for day-to-day banking and saving offered by banks throughout Australia.

TRANSACTION ACCOUNTS

Transaction accounts are for your everyday banking needs, whether it’s somewhere to deposit your pay, or an account to use to pay bills or do some shopping.

Some transaction accounts offer unlimited transactions, while others offer a set number of free transactions, and charge for any transactions over this limit.

Most transaction accounts have a monthly fee. Generally, a higher monthly fee is charged if the account offers unlimited transactions. If you don’t think you will be making many transactions, an account with a lower monthly fee may be better for you.

Some transaction accounts don’t have monthly fees, but these accounts usually have less features, such as only online access, and if you need to use other services, such as branch withdrawals, you’ll usually have to pay additional fees.

PROS

• You can usually keep fees fairly low by choosing an account that matches your usage pattern – an account with a low monthly fee and limited transactions if you’re a ‘light’ user, say you make around 4-8 transactions using ATMs, EFTPOS facilities or telephone banking each month, or an account with a higher monthly fee and unlimited transactions if you’re a ‘heavy’ user, say you make more than about 8 transactions each month.
• Some transaction accounts offer an overdraft facility (subject to credit approval) or a cheque book facility.

CONS

• Very few transaction accounts pay any interest – so money in these accounts doesn’t earn as much interest as savings accounts.

SAVINGS (DEPOSIT) ACCOUNTS

Savings accounts are a good option if you want to save money, perhaps for a holiday, to pay student fees or for Christmas spending.

Interest is paid on savings accounts. The interest rate generally depends on the account balance – the more you have in the account, the higher the rate. Banks offer a broad range of savings accounts with different features to suit different people.

Savings accounts can also be used for your day-to-day banking needs, as most let you make deposits and withdrawals.

Some savings accounts have a monthly fee. Some don’t, but may have a limit on withdrawals, which means that you need to watch you don’t exceed the limit to avoid fees for ‘excess withdrawals’.

Some savings accounts require you to maintain a minimum balance in order to earn interest, or a higher rate of interest.

Some savings accounts provide you with a higher rate of interest if you don’t make a withdrawal over a specified period.

Most banks offer a type of savings account that can only be accessed via the Internet or automated telephone banking – you can’t withdraw cash from a branch. In some cases, branch withdrawals may be permitted, but a fee is charged. An account like this must usually be linked to a transaction account you hold at the bank. This type of savings account is generally fee free – but fees invariably apply to the account it is linked to.

PROS

• Savings accounts usually pay a higher rate of interest than transaction accounts, and often reward you for maintaining a higher account balance.

CONS

• You have to follow the rules in order to reap the rewards. If you use this account for your everyday banking and paying your living expenses, you may make too many withdrawals or fall below the minimum required balance to gain the rewards. You may end up with account fees that you may not otherwise have had to pay.

TERM DEPOSIT (ACCOUNTS)

If you’ve saved some money and don’t want to be tempted to spend it, a term deposit could be for you.

Term deposits earn a higher rate of interest, but involve locking your money away for a fixed length of time – known as the ‘term’. Terms can be anywhere from one month to five years, or even longer. Interest is earned at a ‘fixed’ rate – the interest rate doesn’t change over the specified term.

Term deposits usually pay interest at the end of the term – known as ‘at maturity’. But this is not always the case – some term deposits allow you to receive interest on a monthly or annual basis.

Term deposits usually require a minimum balance. Minimum balances can be anything between $1,000 to $250,000, or even greater. So it can be a good idea to build your money in a savings account, and then move your money into a term deposit once you’ve reached your target amount.

At maturity, you can roll your term deposit into another term. Or you can withdraw your money via bank cheque or cash or transfer your money to another bank account.

PROS

• Term deposits usually offer higher interest rates than savings accounts. Interest rates are usually tiered, so the higher the balance of your deposit, the higher the interest rate you can earn.
• Term deposits usually don’t have a monthly service or management fee.
• Because your funds are locked away, they are a good way of ensuring you don’t touch your savings.

CONS

• If your circumstances change, it can be difficult to get access to your money before the term ends. Some banks allow you to withdraw your money early, but charge an early withdrawal fee or withhold some or all of the interest you might otherwise have earned.

CASH MANAGEMENT ACCOUNTS

Cash management accounts are a good option if you’ve got a higher level of savings and are seeking to invest your money for a higher rate of interest. The interest rate may be tiered – the higher your account balance, the higher the interest rate.

PROS

• The main benefit of a cash management account is the higher rate of interest that is paid.
• You have immediate access to your cash, unlike term deposits.
• You have the benefits of everyday banking and can access your money from ATMs, EFTPOS facilities, Internet and telephone banking, but the fee structure is usually much lower. Some cash management accounts have no monthly service fees and fee rebate systems.
• You can usually link a credit facility, such as an overdraft facility.

CONS

• You usually require a substantial amount of cash before a cash management account can be opened – sometimes $10,000 or more.
• Some cash management accounts pay a lower interest rate, or no interest at all, if your account balance falls below a specified minimum balance during a given month. Account service fees may also apply if your account balance drops below a certain level.
• You usually aren’t able to have an offset facility, such as linking your account to your home loan to minimise your interest costs on your home loan.

FIRST HOME SAVER ACCOUNTS

If you’re buying your first home, you may be eligible for a First Home Saver Account (FHSA), a type of account offered by some banks.

“FHSA” is a Federal Government initiative intended to help you build savings for a deposit and make it easier for you to purchase your first home.

Features of FHSAs include:

• Federal Government will contribute an extra 17% to your account on the first $5,000 (indexed) you deposit in your account each financial year. For example, if you deposit $5,000 the Federal Government will contribute $850.
• Interest earned is taxed at 15%, instead of your marginal tax rate.
• You must deposit at least $1,000 per year for four separate financial years.
• You can generally only withdraw your money to purchase your first home, and after you’ve met the initial four-year saving period. In limited circumstances, such as if you’re purchasing your home with someone else, you may be able to withdraw your money earlier.
• Withdrawals from the account are tax free if you use the money to buy or build your first home to live in. Money withdrawn that is not used for the purchase of your first home must be transferred to your superannuation fund.
• You’re unable to deposit money into your account once the account balance reaches $75,000 (indexed). Federal Government contributions will cease. Money can continue to earn interest.

PROS

• FHSAs offer a combination of Federal Government contributions, favourable tax treatment, and a higher rate of interest, to help you accumulate funds for a deposit on your first home faster.

CONS

• There are restrictions on when you can take your money out. Your money is inaccessible for at least four separate financial years. For example, if you find your dream home within the initial four-year saving period, you can’t access your money.
• There are restrictions on what you can use your money for. If you change your mind and decide against buying or building a home, you cannot withdraw your money. Instead you have to continue to meet the eligibility criteria or close the account and the balance has to be transferred into your superannuation fund (and generally you won’t be able to access your money until you are eligible to do so under the superannuation laws).

SPECIAL BANK ACCOUNTS

BASIC BANK ACCOUNTS

A ‘basic bank account’ is an everyday transaction account designed specifically for low-income or disadvantaged customers. People who might qualify for these accounts include those who receive a government pension or allowance and holders of Federal Government Health Care or Pensioner Concession cards.

A basic bank account allows you to have your wages or government benefits paid, make withdrawals or deposits, and access electronic payments networks. The features of these accounts vary, but may include no monthly service fee, no minimum account balance and unlimited free transactions. Some banks have also reduced or abolished exception fees on accounts for eligible low-income earners and pensioners. (For more information about exception fees, click here.)

DEEMING ACCOUNTS

A ‘deeming account’ is an everyday transaction account designed to provide pensioners or people over 55 years of age and retired with an account which reflects the Federal Government’s deeming rules.

The Federal Government sets – or deems – interest rates for pensioners and recipients of certain allowances, which it uses to assess income under the pension income test and allowance income test. Banks use this deemed interest rate as a guide for setting the interest rate for their deeming accounts.

For more information on deeming, go to the Centrelink website at www.centrelink.gov.au.

YOUTH AND STUDENT ACCOUNTS

Banks also offer low to zero cost accounts for children and students. The features of these accounts vary, but may include no monthly service fee, no minimum account balance, unlimited free transactions and bonus incentives. Bonus incentives can range from rewards for savings to discounts on other products.