Incentive savings account vs introductory rate savings account

In the olden days (which means the 1970s at the most recent…), your savings account was a dull, stolid sort of investment vehicle that was probably held in the same institution as your transaction account. Maybe it was your transaction account.

You had a fixed interest rate and you made a set deposit once a month, with maybe the occasional bump up if you got a bonus or some money for a big birthday.

These accounts worked pretty well, actually, because the base interest rate in the dim and distant past was usually quite buoyant and your money could grow pretty well. Nowadays, however, the cash rate, or base rate, is rather low and the RBA is thinking about lowering it further.

One thing that the 1970s and 1980s didn’t have so much of, however, was choice.

Now there are hundreds of savings accounts out there now, which makes for even more choice and ease of banking. All this means that banks and credit unions have to up their game to attract customers and to keep them longer than a year or so.

Savings accounts don’t need to be complex

As there’s so much choice out there, it can feel quite bewildering, so one way of simplifying things is to look at accounts that have either incentive rates and introductory rates of interest.

Incentive savings accounts

An incentive saver account has a basic rate of interest that applies to balances regardless of how much you deposit into it each month. This rate is usually very low and you probably wouldn’t look twice at it on its own.

The reason people do select savings accounts like these is because they offer a bonus savings rate to people who deposit a minimum amount each month. The incentive interest rate can be three or more times as high as the basic rate, which can be a real draw for many savers.

The BankSA Incentive Saver account, for example, has a standard variable rate of 0.60 per cent on balances of any size, but once you start depositing at least $50 each month, you’ll receive a bonus rate of 1.20 per cent on top. This means that you’ll receive an interest rate of 1.80 per cent on your balance for as long as you maintain this monthly deposit. There are no minimum opening deposit or balance requirements with this account and no fees either, making it ideal for younger savers.

Some incentive saver accounts have higher monthly deposit requirements, like the HSBC Flexi Saver Account, which offers a maximum rate of 2.50 per cent if you deposit at least $300 each month. Savers will still get the bonus rate even if they make withdrawals during the month; not all incentive accounts off this, so if you’re embarking on a serious savings campaign, this account could work well for you.

Always read the small print

It’s important to look at the terms and conditions of all savings accounts before opening one, because you might find that in order to maintain your bonus rate, you must make no withdrawals. Other incentive savings accounts have fees which can eat into your savings or require you to maintain a minimum balance to attract the bonus rate. It’s a good idea to consult a comparison site to look at the rules, terms and individual features so you can eliminate any accounts that don’t suit you.

Introductory rate savings accounts

These savings accounts are almost like the reverse of a credit card with an introductory period in that they pay a higher rate of interest for several months before reverting to the standard rate.

This sort of savings account maximum bonus rate can often be nearly double the standard rate and is a kind of thank you from the bank for choosing the product. The trouble is that these periods don’t last for too long, with most of them being four to six months in length. Then, unfortunately, the revert rate can be less–than–inspiring.

Always be ready to surf

You can, of course, make the most of your golden hello and then be ready to change to another provider that’s offering a similar introductory deal. A good example is the Rabobank Online Savings High Interest Savings Account, which offers 2.75 per cent for four months before reverting to 1.30 per cent.

There are no deposit or withdrawal conditions with this account, so you’ll maintain the 2.75 rate even if you take out money during the introductory period. Not all accounts offer this, however, so make sure you’re not risking losing your bonus rate by dipping into your funds.

The AMP Saver Account also offers a four–month introductory period of 2.75 per cent, but it has a slightly more attractive revert rate of 1.65 per cent. There’s no fees or limits on withdrawals, and you’ll still get your bonus rate if you do withdraw money, but this account is only for new customers signing up to AMP.

Good interest rates that you can rely on

You might prefer something more cut–and–dried when it comes to your savings accounts, or you might be looking for something that you can set and forget and still get the benefit of a relatively high interest rate. If this sounds like you, then you might be better off with a term deposit account.

While incentive and introductory rate savings account offer a lot of flexibility and the opportunity to surf introductory rates, you also need to make regular decisions about switching. Incentive accounts mean you have to make a certain size of deposit each month in order to get the benefit of the bonus rate and you might not always be able to manage this.

With term deposits, all you have to do is deposit a set amount of money for a pre-arranged period of time – usually one month to five years – and then leave it. Term deposits give you a fixed interest rate for the duration, so you’ll know exactly what you’ll get at the end, with no more effort on your part.

You can compare savings accounts and term deposits from Australia’s major banks, credit unions and building societies at InfoChoice.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.