Keeping your money in a bank account, whether it’s a savings account or term deposit, is an investment, so it’s worth making sure you’re getting the most out of it. Get the best return on your deposit by considering the following factors.
Understand how interest works
The amount of interest you earn depends on how much money you have in your account, the interest rate, type of interest and how often it is paid. The two types of interest that can be applied to your accounts are simple interest or compound interest.
Simple interest is calculated on the principal amount. Compound interest is also calculated on the principal amount but then added to your account balance so that over time you are also earning interest on your interest.
How often interest is calculated can also make a big difference to your interest earnings. This can vary, but most banks calculate your interest on a daily basis and add it to your account once a month.
Everyday banking accounts
Although you might not think of it as one, your everyday account is an investment. Typically, an everyday bank account accrues interest when you deposit or maintain a specified minimum amount each month. This type of account pays the lowest interest rate, but it gives you instant access to your money.
Look for high interest accounts
Most financial institutions offer high interest savings accounts. If you’d like to have a special bank account to save towards a specific goal or put aside money for a rainy day, but you want to still be able to access your funds, a savings account may be a good option for you.
As they offer a higher interest rate, these accounts don’t usually come with debit cards so it’s not easy to withdraw your savings. They may offer bonus interest payments based on regular deposits and not making withdrawals.
Consider a term deposit
A term deposit normally produces the highest rate of return. With a term deposit, you invest a minimum amount for a set period of time, at a rate which is locked for the duration of the set term. If interest rates drop, you’ll continue getting the same rate of return, but if you need to withdraw any of the funds before the set term expires, you’ll receive a lower interest rate for the entire term.