If you’re after a higher interest rate on your savings account for a limited period of time, then an introductory savings account could be the right product for you.
Here we’ll explain what an introductory savings account is, how they work, and how you can make the most of them, as well as the dangers of using them for too long.
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An introductory savings account is a certain type of savings account offering what is usually a much higher total interest rate for a short period of time, normally between three to six months after the account is opened. Once this introductory period is over, the interest rate usually ‘reverts' to the account’s ‘base rate’ which is typically a much lower interest rate.
Another term used to describe this introductory interest rate is a honeymoon rate, so-called because it only lasts for a few months, sort of like a ‘honeymoon phase’ where everything is perfect, before moving back to reality where everything is not so perfect.
Introductory interest rates are often much higher than the interest rates offered on non-introductory savings accounts, as you can see from the table below.
The table below features savings accounts with some of the highest non-introductory interest rates on the market.
Introductory savings accounts have an “intro term” and a “base rate”, which you should pay close attention to before committing to one of these accounts. The intro term is the period of time the introductory interest rate lasts before it reverts to the base rate, which in some cases can be as low as 0% p.a.
However, this doesn’t mean the introductory rate is a fixed rate. It is still technically a variable rate, meaning the bank still reserves the right to lower the introductory rate (e.g. if the Reserve Bank of Australia cuts the cash rate) before the expiry of the intro term.
In contrast, non-introductory savings accounts have no intro term or intro rate, but some have what’s called a “bonus” or “conditional” interest rate. The bonus interest rate is an extra interest rate some savings accounts offer on top of the base rate provided you meet certain conditions.
The conditions to earn this bonus interest rate are usually one or multiple of the following:
For example, UBank’s USaver product requires customers to deposit at least $200 per month from a linked account in order to earn the bonus interest rate each month. Others can be more restrictive, and might only pay the bonus interest rate if you don't make any withdrawals from the account during the month.
If you have a bonus savings account and don’t meet the specified bonus conditions one month, then only the base rate will apply that month, which might be as low as 0.01% p.a.
So in summary:
Introductory savings accounts may be better for short-term savings, while a bonus savings account may be better for longer-term usage by those with consistent savings habits.
Some advantages of an introductory savings account can include:
The key disadvantage is the fact that, as we’ve discussed, the higher rate doesn’t last for long, and rate it reverts to at the end of the intro term will often be very low. So to continue earning a worthwhile rate of interest on your savings after the intro rate expires, you’ll probably have to go through the hassle of moving to a different account again.
One way some people try to get the most value out of introductory savings accounts is by ‘churning’ them, like people do with credit cards where they consistently sign up to new accounts to take advantage of introductory offers.
The bonuses on offer with savings accounts might not be as sexy as they are with credit cards, but if you’re willing to put the effort in, then you might consider 'churning' accounts by:
This should be relatively easy to do, as signing up for a savings account can only take a few minutes online. You also don’t always have to go through the whole ‘direct debit’ rigamarole that usually comes with switching banks, as you’re only putting your savings in there.
Once the introductory term has expired, take that money out and transfer it to a new account, and you could be making more in interest than most other people.
If you’re considering getting an introductory savings account to get a higher interest rate, then ask yourself: is it really worth changing banks every three to four months just to earn a few percentage points more in interest?
Although it won’t require too much work on your part, the difference will be slim at best thanks to how low interest rates are at the moment. In a low interest rate environment, the difference in savings you could make in just a few months via interest may not be worth it.
If you don't think it’s worth it, you could instead pick a savings account with a high interest rate that doesn’t expire.