I always read the Money section with interest. Your item published on March 12, "Protect, grow your money", finished with the advice to Peter … recommending a high-interest savings account. As my wife and I, in our 70s, have limited funds invested, I would love to source a high-interest savings account. Please advise.
Ahh Ken, you are in a difficult position in such a low-interest environment. At 1.5 per cent, official interest rates have never been lower – and, of course, it is this figure to which what you can earn in a bank is theoretically hitched (I say theoretically because banks have been blatantly prioritising the dividends of their shareholders over the circumstances of their account, loan and credit card holders – more in a moment though).
The top-five high-interest accounts listed by infochoice (after you untick the "show sponsored links first" box; a quick investigation of any comparison website will reveal there's often an easy trick to get them to display unfiltered listings – promoting those that pay is how they typically make their money) are: RaboDirect 3.05 per cent; ME Bank 3.05 per cent; Credit Union SA 3 per cent; ING Direct 3 per cent; Newcastle Permanent 3 per cent.
However, that's not even the full story. This is only the potential interest rate, in all but one case.
As the Reserve Bank has slashed rates in recent years, institutions have increasingly opted to pay a base and (maybe) bonus amount should you meet specified conditions – say, no withdrawals and $200 deposited in a given month. A recent survey by financial researcher Canstar found that while in 2012 the average base rate was 1.01 per cent, last year it was only 0.46 per cent. And there are plenty that only pay a guaranteed 0.01 per cent.
My recommendation is never opt for a "bonus saver" account with a base rate less than half the total. So ME Bank fails with a base of only 1.3 per cent of the 3.05 per cent total (although the condition is a strange use-the-linked-transaction-card every week, via tap and go).
For you, Ken, the most appealing account is RaboDirect's, which is paying 3.05 per cent for the first four months (if you are a new customer). This is the other account-provider tactic: a higher introductory rate to entice you in. The advantage is you can do anything with your money during the four months, without losing interest, and simply move it to another institution paying an introductory rate after that.
Pensioner accounts also exist, but can't match the high-interest savings accounts that are generally available.
Of course, you can get far more not as an account holder, but as a shareholder. No big bank appears in the above list but the biggest, Commonwealth Bank, has a dividend yield of 5 per cent (some 7 per cent with franking credits, a refund of excess tax the company has paid versus your own rate).
I don't hold a CBA savings account, but I certainly hold its shares. The particular issue for you though Ken, at 70-something, is the ability for shares to fall and for you to lose money. Only ever buy shares as part of a well-diversified portfolio and if you need help, check out the extensive articles in Money.
UPDATED: Please note, the Community First product initially recommended in this article (paying 3 per cent) is a closed product designed to facilitate marrying couples collecting gifts of money from their guests. We apologise for this error.
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at firstname.lastname@example.org.