How to earn interest on savings

1 July 2024

Now’s a good time to remember the basics of earning interest, suggests CommBank personal finance expert Jess Irvine. “Interest rates were low for a long time but now they’ve risen again and offer a low-risk way for you to grow your money.” Of course, it’s not always as simple as putting money in an account and leaving it – although that’s a good start. Here are some easy ways to make your money work harder.

Look for offers                    

If you’re not sure what you want to do with your savings or there’s a chance you need to spend some of it, a high-interest, ‘at-call’ consider a savings account. It always pays to look for the highest interest rate available, including introductory offers. For instance, CommBank’s NetBank Saver has a higher interest rate for the first five months (so long as it’s your first time opening a NetBank Saver) and you’re able to add or withdraw money without impacting the rate.            

Embrace compounding

Savers who manage to leave their money untouched for long periods of time really win the compound interest game. Put simply, this is the interest earned on your interest. For example, if you save $1,000 and earn interest at a rate of 2.5%  over 10 years, you would have $1,280.08 interest, compared with $1,250 when you only earn simple interest (when you only earn interest on the amount you put in savings, at a set rate). Compound interest is usually calculated on your balance daily, then paid into your account each month.

Watch out for penalties

If you’re a consistent saver, there are savings accounts (like CommBank’s GoalSaver) that reward you with higher interest if you add to the amount in the account each month, no matter by how much. If you don’t save each month, you’ll earn a lower rate – so there’s quite a large incentive to contribute regularly. “This type of account suits consistent and long-term savers,” says Jess.

Save in your offset

If you have an eligible home loan, try linking your loan to an offset account and treating it like a savings account. You can withdraw money when you need to, but the real advantage is that any money in that offset account reduces the interest you’re charged. This means that in the long run, you can shorten the term of your mortgage.

Get your kids in the game

Encouraging teens to open a savings account helps them build good habits. “It will also ensure they start earning interest early,” says Jess. CommBank’s Youthsaver account is for under 18s who will earn a better interest rate if they save monthly.

Consider a term deposit

Term deposits allow you to secure an interest rate as a reward for locking in a lump sum for a set period. The upside: no matter what happens with interest rates, you know what you’re earning. Say you put $20,000 in a term deposit earning 4.25% from August 2024 to August 2025. You’d earn $850 in interest. The catch? You can’t top up the term deposit and if you take money out early, you may forfeit some of the interest earned and pay a break fee. 

Things you should know

This article provides general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as personal financial product advice. The views expressed by contributors are their own and don’t necessarily reflect the views of CBA. As the information has been provided without considering your objectives, financial situation or needs, you should, before acting on this information, consider the relevant Product Disclosure Statement and Terms and Conditions, and whether the product is appropriate to your circumstances. You should also consider whether seeking independent professional legal, tax and financial advice is necessary. Every effort has been taken to ensure the information was correct as at the time of printing but it may be subject to change. No part of the editorial contents may be reproduced or copied in any form without the prior permission and acknowledgement of CBA.