AUSTRALIA'S LEADING SAVINGS ACCOUNTS

Looking to save some money this year, may be open a high interest savings account? Have a look at these smart tips on saving your valuable pennies.

1.Set Goals

What you'll learn in this step: successful saving starts with small, realistic goals.

Sometimes it seems the more you earn, the more you spend. Somehow, your expenses expand to meet the size of your wallet. And, when it comes down to it, the idea of saving for an overseas trip or even the deposit on a house is a bit overwhelming ? it's all too hard.

But setting yourself a goal, and breaking that goal down into bite-sized targets, is the key to successful saving. You need an incentive to give up some of life's luxuries ? why cut back on your social life or trim your spending on clothes for no particular reason?

The smaller the goal, the easier it is to set out on the road to saving. You might start with a moderate ambition, such as saving for a holiday. First, think about what you want to do, when you want to do it, and how much you'll need. Then, work back from there to establish how much you need to save each week or month. Finally, start setting that aside in an account that has low fees, good interest and disincentives against touching it.

Once you've accomplished your first savings goal you'll have the confidence to move on to bigger things ? a car, the deposit on a house or an investment portfolio.

Achieving a bigger goal may involve making some cutbacks. But be realistic about what you'll give up ? if you're too hard on yourself, you're unlikely to stick to your plan (a bit like diets, really).

The key is to save something. One rule of thumb is to save 10 per cent of your pay. But if you've done your sums (see our step-by-step guide to budgeting) and that's just not viable for you, save what you can ? every little bit adds up.

2. Start Saving

What you'll learn in this step: simple changes to your lifestyle can make a big difference.

So you reckon you haven't got anything left over to save? Sometimes it's the small things that count. There are plenty of ways to adjust your spending to make savings that can quickly add up to a worthwhile sum over a week, a month or a year.
Day-to-day

* Bring your lunch to work. People generally spend about $10 a day ? that's $50 a week ? buying their lunch.
* They may be ?skinny?, but those lattes and cappuccinos can add up ? one in the morning and one in the afternoon could come to a fat $50 to $70 a working week.
* Cut down on takeaway meals ? you may be home late, but a $1 bag of pasta takes half the time to cook than the $12 Thai meal you'll have to wait 20 minutes for anyway.
* Shop weekly at the supermarket, not daily at the corner store ? where prices can be a third higher.
* Don't shop when you're hungry ? you'll buy more food.
* Buy fresh food. Pre-prepared convenience meals come at a premium.
* Check out home brands. There's often little difference in quality but a big difference in price.
* Consider shopping online ? there's a service fee, but you won't be throwing spur-of-the-moment purchases in your trolley.
* Car pool to work or school.
* Do your lungs and wallet a favour: stop smoking. If you're burning $5 a day, that's $35 a week, or $1820 a year. You'll also qualify for lower health insurance premiums.
* Subscribe to magazines and newspapers rather than buying them at the newsagent. Subscriptions are usually cheaper.
* If you're a regular, season tickets for entertainments such as the theatre or sport are cheaper than buying the individual tickets.
* Borrow books from a library or visit a second-hand book store.
* Shop for clothing and electronic goods at factory outlets and clearance centres.
* Buy furniture at auctions.

Big-ticket expenses

* Are you on the best plan for your home phone, mobile phone and internet service? Some providers offer discounts if you ?bundle? your services with them ? but make sure it really is a better deal than offered by separate providers.
* Shop around for your car, health, home and contents insurance when they fall due instead of just automatically renewing them. There's a lot of competition for your business, and there are discounts for ?bundling?. (See our step-by-step guides to insurance.)
* Is your mortgage suited to your needs? You may be paying a higher interest rate for bells and whistles you neither ring nor blow. (See our step-by-step guide to buying a home).
* Work out which type of credit card is better for you. Go for the interest-free days if you pay off your balance each month, otherwise find one with a lower interest rate. (See our step-by-step guide to credit cards.)

Bank fees

A recent survey uncovered more than 100 different fees imposed by banks and other financial institutions, so analysing your banking habits and working to avoid fees can leave you with a meaningful sum. Here are some suggestions:

* Use your own bank's ATMs and avoid the fee for using a competitor's.
* Use the internet rather than a branch for your banking, as online fees are lower.
* Make sure the type of account suits the way you bank ? if you transact frequently choose an account with a number of transactions built in, rather than one with a fee for every transaction.
* Some account banking fees are waived if you have a mortgage with the bank ? check whether you qualify.
* Limit the number of withdrawals you make on your account. Don't draw small amounts frequently but a larger amount once a week.
* Withdraw cash when you're using Eftpos for shopping or petrol and save a separate transaction fee.
* Scheduling an automatic transfer via internet banking may be cheaper than arranging a direct debit.

3. Put your savings to work

What you'll learn in this step: simple changes to your lifestyle can make a big difference.

What you'll learn in this step: you can make your savings grow without doing anything.

You've budgeted, you've made some cutbacks ? now what to do with the money?

The first thing you should do is arrange to have that amount taken directly out of your pay packet and deposited into a savings account, or automatically transferred from your everyday account each payday to an account that you won't be tempted to touch.

Waiting to allocate your savings until after you've paid for everything else doesn't work ? there'll never be anything left over.
The magic of compound interest

Once your money is in the bank, compound interest will start to weave its magic.

What's compound interest? It's interest paid on interest. In other words, you're earning interest not just on the sums of money you actually deposit in your account but, as time goes on, also on the interest you're earning on those deposits.

The longer you invest, the greater the impact of compound interest. To illustrate, let's say you do no more than make a one-off $1000 deposit into a bank account earning a conservative 5 per cent interest. At the end of year one you'll have earned $50 in interest and now have $1050 in the bank. In year two you'll earn $52.50 interest on that sum, taking your balance to $1102.50.

Soon things start to speed up. By doing nothing more than reinvest the interest each year, you'll have $1628 after 10 years. After 20 years you'll have $2653 and after 30 years you'll have a $4321 ? that's your original $1000 deposit plus $3321 in interest. The interest represents a whopping three-quarters of the money you've saved.

In the real world you'd try to get that interest rate up a bit higher ? say, 8 per cent ? and you'd keep adding savings of $1000 a year. The result? You'd have $17,804 after 10 years or $132,408 after 30 years.
Payment frequency

The compound interest effect can be accelerated by how frequently interest is paid. The more often it's paid the better. For example, if your interest is calculated daily and paid monthly, you're far better off than if it's calculated monthly and paid quarterly (or even six-monthly or annually).

An account with a 2 per cent interest rate gives an effective rate of 2.0184 per cent if interest is paid monthly, 2.0151 per cent if paid quarterly and 2.01 per cent if paid half-yearly. And of course, the rate is just 2 per cent if it's paid only once a year.

Do your research to see which combination of interest rate and payment period comes out best ? a slightly lower interest rate with more frequent payment might win out, or less frequent payments but at a higher interest rate.

4. Which account?

What you'll learn in this step: some accounts are better for saving than others.

As you can see, relatively small changes in interest rates can make quite a difference to how quickly you achieve your savings goals. That means you should think carefully about where to deposit your savings.

Let's say you've amassed $5000. Keep it in your everyday bank account and you're likely to earn virtually no interest ? and any interest you do earn will probably be eaten up by bank fees anyway. In a savings account, however, you might earn 3 per cent interest ? or $150 interest a year. But if you put the money in a cash management account with an interest rate of 5 per cent a year, you'll be looking at $250.

Here's a guide to the five key types of bank account.
Basic

A basic bank account is just what it says ? basic. There are usually no fees if you stick to the bank's withdrawal guidelines, but the downside of this type of account is that it pays little or no interest, so it won't do much to accelerate your savings.
Transaction

If you need a chequebook, your day-to-day banking is best served by a transaction account. However, such accounts come at a price.

Monthly account-keeping fees range from $2 to $15, though these may be waived if you maintain a specified monthly balance (say, $1000).

In addition, you may be liable for transaction fees if you exceed a specified number of free transactions. These fees depend on the type of transaction. If they are levied at all, online banking fees tend to be the cheapest at around 25 cents. At the other end of the scale, using another bank's ATM can cost you as much as $2.50 a pop, and you may be up for $5 for the privilege of interacting with a human being by making an over-the-counter withdrawal at a branch.

Check how your bank charges the transaction fees. Are transactions counted in chronological order, or does the bank allow the dearest transactions to be counted as your free transactions?

Fees may be waived if you are a student, pensioner or have other business with the bank, such as a mortgage. Ask the bank if you qualify.
Bank fees

A recent survey uncovered more than 100 different fees imposed by banks and other financial institutions, so analysing your banking habits and working to avoid fees can leave you with a meaningful sum. Here are some suggestions:

* Use your own bank's ATMs and avoid the fee for using a competitor's.
* Use the internet rather than a branch for your banking, as online fees are lower.
* Make sure the type of account suits the way you bank ? if you transact frequently choose an account with a number of transactions built in, rather than one with a fee for every transaction.
* Some account banking fees are waived if you have a mortgage with the bank ? check whether you qualify.
* Limit the number of withdrawals you make on your account. Don't draw small amounts frequently but a larger amount once a week.
* Withdraw cash when you're using Eftpos for shopping or petrol and save a separate transaction fee.
* Scheduling an automatic transfer via internet banking may be cheaper than arranging a direct debit.

Compare transaction accounts

Savings

These accounts have higher interest rates than regular transaction accounts and sometimes include features such as a ?bonus? interest rate if you make no withdrawals in a month. The interest rate may be tiered, climbing as the balance of the account increases. Again, check how often interest is calculated and paid. And make sure you maintain the specified minimum balance or you might be hit with fees.

Compare savings accounts

Online savings

These accounts eschew the bells and whistles in favour of a higher interest rate. They suit people who are comfortable with only having access to their money online. You can usually transfer money to and from other accounts without the usually account-keeping or withdrawal fees ? though be careful to read the small print on fees. At the time of writing, you could earn as much as 6.6 per cent on one of these accounts, versus a maximum 4.75 per cent in a standard savings account.

Compare online saving accounts

Term deposit

With term deposits, you deposit your money for a specified period, which can range from one month to five years. The longer the term, the higher the rate of interest. Again, check how often the interest is calculated and paid.

Compare term deposit accounts

Cash management accounts tend to come with all the bells and whistles of a transaction account but with the attraction of a higher interest rate, often calculated daily and paid monthly.

But ? and it's a big but ? you usually need a minimum of $1000, $2000 or even $5000 to open an account. Most CMAs come with tiered interest rates, and you might need a hefty balance to actually qualify for the top rates you'll see advertised. Lower down the scale you'll need to compare the rates with other accounts.

Cash management trust

A cash management trust is a pooled investment. A manager pools your funds with the funds of other investors and places the money in a variety of short-term money market instruments, such as bank bills. You'll need a prospectus and an application form if you want to put your money in a cash management trust.

While many have chequebook facilities, the minimum withdrawal could be $500, with penalties for smaller amounts. There's usually a minimum amount needed to open an account and they tend to offer a flat rate of interest.

Is there an alternative to banks?

We've been talking about bank accounts, but of course there are other financial institutions that provide avenues for saving. You may be able to accelerate your savings with a credit union or building society, which tend to be cheaper than banks.

?Non-bank financial institutions? (or NBFIs) such as the one-time mortgage broker Aussie Home Loans now offer a broader range of financial products, too.

5. Safeguard your savings

What you'll learn in this step: keeping hold of your money isn't just about financial discipline.

The Australian Securities and Investments Commission (www.asic.gov.au) regulates deposit-taking institutions by setting standards about what they tell their customers, monitoring compliance with codes of practice and taking action against misconduct.

You can also take complaints about banks and other financial institutions to the Banking and Financial Services Ombudsman (www.abio.org.au), but try to resolve issues directly with the institution first, either at a branch or department level or through its customer relations department.

Beware of internet scams that try to con you out of your hard-saved money. Con artists go ?phishing? for information by sending hoax emails purporting to be from your bank asking you to confirm, update or disclose your confidential banking information.

But banks never send emails (or make phone calls) asking for such information.

ASIC also manages a database of unclaimed money in forgotten bank accounts ? in 2006 there was a record $204 million in almost 161,000 accounts waiting to be returned to its rightful owners. If you think you've lost track of some money, you can make a free, instant search at www.fido.gov.au.

Savings Accounts try and source the best articles on the internet to help and inform our valued customers into maximising their saving potential.