Bonus savings rates explained

When a bank advertises a savings account at 5.50% p.a., that figure is almost never one rate. It is two rates added together: a base rate that you earn no matter what, and a bonus rate released only in months where you satisfy every one of the account’s conditions.

This structure is not a technicality, it is the entire economics of the product. Banks know that a meaningful share of customers will miss a condition in any given month, and the accounts are priced on that assumption. The advertised rate is what the bank pays a perfectly compliant customer. The base rate is what it pays everyone else.

The gap between the two is the number that decides what your savings actually earn, and it is usually large. An account advertising 5.50% commonly pays a base rate well under 1.00%. Missing a single condition in a month does not shave a little off your interest, it moves you from one rate to the other for that whole month.

Conditions vary by bank, but they are drawn from a small and predictable set. Most accounts require two or three of the following, all of which must hold in the same calendar month.

• A minimum monthly deposit, commonly $200 to $1,000 into the account or a linked transaction account. Some banks require the deposit into the savings account itself, others into the everyday account, and getting this the wrong way round is a common and invisible failure.
• A minimum number of card transactions, typically five on a linked debit card. Direct debits and BPAY payments usually do not count, and transactions often have to settle within the month, not merely be made, so purchases in the last day or two can fall into the next month.
• No withdrawals, or a growing balance. This is the strictest condition and the one that makes an account unsuitable for money you may need. On some accounts a single withdrawal of any size forfeits the month.
• A balance cap. The bonus rate frequently applies only up to a threshold such as $100,000, with anything above it earning the base rate. This matters most to exactly the savers with the most to lose.
• Age or account-type limits. Some of the sharpest rates are restricted to under-25s or require you to move your primary banking across.

What is not on the list: nothing here requires saving more, only behaving in a particular pattern. An automatic transfer on the first of the month and a single recurring subscription on the linked card satisfy the majority of accounts without any ongoing attention.

Three different structures compete in this market and they suit quite different savers. Comparing them on the advertised rate alone misleads, because the rates are not the same kind of promise.

An introductory rate is the one most often misread. It is genuinely unconditional, which makes it attractive, but it applies for a fixed opening window, commonly three to five months, and then reverts to an ongoing rate that can be dramatically lower. An intro account left unattended for a year can easily earn less than a plain unconditional account.

Unconditional accounts pay less on paper and more in practice for a large group of savers. If your balance moves unpredictably, if you are holding an emergency fund you may need at no notice, or if you know you will not track conditions month to month, the honest comparison is between an unconditional rate you will definitely earn and a bonus rate you will earn some of the time.

These matter more than the rate table, roughly in this order:

1. What the money is for. Money that may be needed in a hurry and a no-withdrawals condition work against each other, whatever the rate on offer.
2. The base rate, not just the headline. It is what the account earns in any month things go wrong, and on some accounts it is close to nothing.
3. The balance cap against the expected balance. A bonus that stops at $50,000 is worth much less to a $120,000 balance than the headline suggests.
4. Where the monthly deposit must land, and whether card transactions must settle or merely be made within the month.
5. Automation. A scheduled transfer on the first of the month and a recurring subscription on the linked card remove most of the risk permanently.
6. The revert date on an introductory rate, after which the account earns its ongoing rate.
7. Rate changes over time. Banks change base rates, bonus rates and conditions independently of the cash rate and rarely announce it prominently.

One structural protection is worth knowing regardless of which account you pick. Deposits with an authorised deposit-taking institution are covered by the Australian Government’s Financial Claims Scheme up to $250,000 per account holder per institution. The trap is that many bank brands share a single banking licence, so splitting money between two brands of the same group does not give two lots of cover. The cap follows the licence, not the brand.

The highest advertised rate on the market is worth little to someone who misses the conditions four months a year. An unconditional rate a point lower, earned every single month, often comes out ahead, and it needs no attention at all.