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Australia High-Interest Savings Guide

the high-interest savings accounts in Australia. The guide covers: the HISA structure (the "high-interest savings account basics") — the "high-interest savings account (the HISA)" is the "transaction-linked savings account" offered by the banks, the credit unions and the building societies in Australia; the HISA pays the "variable interest rate" (the "rate set by the institution and may change at any time") on the "daily balance" (the "interest calculated daily and paid monthly"); the HISA rate is typically split into the "base rate" and the "bonus rate" (the "introductory rate" or the "conditional bonus rate" — the "extra 1% to 2% per annum" for meeting the specific conditions); the bonus rate conditions (the "requirements for the higher rate") — the most common bonus rate conditions: (a) the "monthly deposit condition" (the "deposit $500 to $2,000 per month into the linked transaction account"), (b) the "no withdrawal condition" (the "balance must not decrease during the month" — the "growth account" — the "no withdrawals allowed"), (c) the "transaction account linked condition" (the "hold the linked everyday account with the same institution"), (d) the "age condition" (the "under 30 years old" — the "youth savings account"); the tax treatment of the savings interest (the "interest income taxation") — the interest earned on the HISA is the "assessable income" (the "interest income") taxed at the "marginal tax rate"; the interest is included in the "taxable income" in the "income year in which the interest is credited"; the bank reports the interest to the ATO (the "data matching program"); the taxpayer must declare the interest income in the "tax return" at the "Item 10 — the Interest income".

Best HISA Strategies

  • Emergency fund allocation: The HISA is the ideal vehicle for the "emergency fund" (the "3 to 6 months of the living expenses" in the "liquid, the low-risk, the accessible account"). The emergency fund should be held in the "HISA with the instant access" — the "no withdrawal restrictions" and the "no early exit penalty". The emergency fund should be kept separate from the "transaction account" to avoid the "accidental spending".
  • Rate chasing strategy: The investor can "chase the higher rates" by switching the HISA accounts regularly (the "every 3 to 6 months" to capture the "introductory bonus rates"). The switch process: (a) open the new HISA with the introductory rate, (b) transfer the balance from the old HISA, (c) close the old HISA. The rate chaser must monitor the "bonus rate expiry" and the "ongoing rate".
  • Tax-efficient holding: The HISA interest is taxed at the marginal rate — the higher-income earner (the "marginal rate of 30% to 45%") should consider the "tax-effective alternatives" (the "superannuation contributions" for the long-term savings, the "ETFs" for the growth-focused portfolio). The low-income earner can use the "HISA" effectively as the "first $18,200 is tax-free" under the "tax-free threshold".

For the term deposit comparison and the fixed-rate alternatives, see our Term Deposits Guide →.

HISA Account Features

  • Internet banking and the app: The HISA accounts offer the "internet banking" and the "mobile app" access — the investor can monitor the balance, the interest earned and the transactions. The "progressive banks" (the "ING, the UBank, the Up, the Macquarie") offer the "competitive rates" and the "user-friendly apps".
  • Linked transaction account: The HISA is typically linked to the "everyday transaction account" (the "spending account with the Visa debit card"). The transfer between the accounts is "instant" and "free". The linked account structure allows the "automatic sweep" (the "excess funds moved to the HISA automatically").
  • FCS protection: The HISA is guaranteed under the "Financial Claims Scheme (the FCS)" for the "up to $250,000 per the account holder per the institution". The FCS covers the majority of the banks, the building societies and the credit unions in Australia. The investor should not hold more than $250,000 in the single institution.

For the government bonds and the fixed-income alternatives, see our Government Bonds Guide →.