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.
On this page:
- What is an introductory savings account?
- Current introductory interest rates on the market
- How do they work?
- What are the pros and cons of introductory savings accounts?
- How to get the most value out of them
What is an introductory savings account?
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.
What interest rates do intro savings accounts have?
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 two tables below.
The table below features introductory savings accounts with some of the highest interest rates on the market.
*Data accurate as at 07 August 2020. Rates based on a savings balance of $10,000. Sorted by total interest rate. Refer to providers' websites for bonus rate conditions. Note that the base rate will apply once the introductory term has passed.
The table below features savings accounts with some of the highest non-introductory interest rates on the market.
*Data accurate as at 01 August 2020. Rates based on a savings balance of $10,000. Introductory bonus interest rate products not included. Sorted by total interest rates. Refer to providers' websites for bonus rate conditions.
How do intro savings accounts work?
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.
How they’re different to bonus savings accounts
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:
- Depositing at least $X into your savings account each month
- Making zero or limited withdrawals each month
- Having a linked transaction account with $X deposited each month
- Making a certain number of transactions each month using the linked transaction account
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, like the RAMS Saver account, which only pays the bonus interest rate if you do not 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:
- Intro savings accounts often have a higher total interest rate and less restrictive conditions than bonus accounts, but only last for a short period of time.
- Bonus savings accounts often have lower overall interest rates than intro accounts, but may provide better value over the long term as the rate you can earn is likely to be higher after, say, six months, than it would be with an intro account.
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.
How you could get the most value out of intro savings accounts
Some advantages of an introductory savings account can include:
- higher interest rate in the short term
- low or no fees
- low maintenance
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:
- Finding a savings account with a higher interest rate
- Putting as much of your savings in there as you’re comfortable with
- Taking advantage of the higher interest rate
- Closing the account when the intro term is over and switching to a new one
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.
Savings.com.au’s two cents
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.
Let’s say you have an initial deposit of $10,000, and put $1,000 in savings in there every month. At a 2.65% p.a. introductory interest rate for six months, you’d earn $180 in interest in that time. If you did the same but in a non-introductory savings account at 2.00% p.a, you’d earn $135 in interest.
So you’ve made an extra $45 in this instance, and that’s with a fairly large amount of savings. Those of you with less than this will earn even less interest.
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.
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