Shop around to maximise that savings return
"If you're working within a relatively short time frame and looking for maximum returns, you'll want to have absolute assurance that when that time comes, the money is there," says Claire Mackay, financial planner at Quantum Financial.
"For a short-time saving plan, look for high-paying-interest bank accounts or term deposits," she says. The benefit of these types of saving accounts is flexibility.
Customers can deposit as little or as much money as they want, and as often as they can, while earning a high interest rate each day of the month until the end of the term. For example, an opening balance of $10,000, with additional monthly contributions of $200, on the first business day and no withdrawals, receiving the current interest of 4.5 per cent calculated daily over 12 months, will total $12,920.69 at the end of the year.
"Keep a watch on accounts with a honeymoon period that may have lapsed, or if you haven't satisfied the monthly criteria, as your interest rate could drop.
"It's very important to ensure you understand all the details once any introductory rate has lapsed," she says.
For longer saving plans of six months or more, opt for a term deposit that provides a higher interest rate when you add to your savings each month.
If you have a mortgage, Mackay suggests using an offset account to park savings. Any additional savings against your mortgage will build up the offset account, thereby reducing the amount of interest payable on the mortgage.
Indy Singh, managing director of financial services group Fiducian says cash management accounts provide assurance for those looking to maximise savings over a shorter period.
"Currently, these types of cash accounts earn 3 to 3.5 per cent, whereas franked shares return almost 5 to 7 per cent, but there are more risks involved.
"Shares are not a short-term investment. If you're willing to risk the volatility of the stockmarket, then look for a share portfolio with stocks that provide franking credits."
Martin Crabb, head of research at Shaw Stockbroking, says a combination of fully franked income and ongoing dividends can maximise returns. Name recognition is an important ingredient investors look for in building a share portfolio.
"A typical yield portfolio comprises a couple of banks, a supermarket, a general insurer, Telstra and Coca-Cola.
"With the exception of Coca-Cola, all dividends are fully franked and, in some cases, these stocks are paying special dividends. If you have only a small amount of money, you can focus on only one or two." However, investors who want safety first should avoid the sharemarket, as shares are designed to be held for long, not short, periods, Crabb says. He cautions investors against comparing high-dividend paying stocks with cash or term deposits.
"With cash and term deposits, your capital is safe," he says. "Even with the 'safest' shares, this isn't always the case.
"In terms of risk, start with a high-interest online savings account, followed by term deposits, then corporate bonds or listed property trusts, followed by high yielding Australian shares," he says.
Accounts to maximise your returns
Westpac Reward Saver Standard interest rate 0.1 per cent, bonus rate
4 per cent (total 4.1 per cent) each month when you make no withdrawals and deposit a minimum of $50 by the last business day.
CBA GoalSaver Standard interest rate 0.5 per cent, bonus rate 4 per cent (total rate 4.5 per cent) on balances up to $100,000 when you increase your balance by at least $200 a month, excluding interest, and make no more than one withdrawal a month.
RAMS Saver Standard interest rate 3.21 per cent, bonus rate 1.3 per cent (total rate 4.51 per cent) on balances up to $500,000 with a minimum deposit of $200 a month and no withdrawals.
Frequently Asked Questions about this Article…
For short-term saving goals, look for high-paying interest bank accounts or short-term term deposits. These options give flexibility and the assurance that your money will be available when you need it. High-interest online savings accounts often pay competitive rates daily, while term deposits can lock in a higher guaranteed rate for a fixed term.
If your saving horizon is six months or more, consider a term deposit that lets you add to your balance each month and offers a higher interest rate for that commitment. For shorter horizons you may prefer a high-interest savings account for day-to-day flexibility and access.
Yes. Parking extra savings in a mortgage offset account reduces the balance on which your mortgage interest is calculated, effectively lowering the interest you pay on the home loan while keeping your savings accessible.
Cash management accounts provide assurance for short-term saving and typically earn around 3–3.5% according to the article. Franked shares can return about 5–7% but carry stockmarket volatility and are not suitable as short-term investments. Choose cash accounts for safety and shares only if you accept higher risk and a longer time horizon.
A yield-focused portfolio often combines fully franked dividends and ongoing payouts to maximise returns. Common choices include well-known banks, a supermarket, a general insurer, Telstra and Coca-Cola. Franking credits can boost after-tax income, but shares are designed to be held long term and carry more risk than cash or term deposits.
Cash and term deposits generally keep your capital safe, while even 'safe' shares can fall in value. High-dividend stocks should not be directly compared to guaranteed cash rates because dividends and share prices can fluctuate. Assess your risk tolerance and time horizon before prioritising shares over cash.
Watch for introductory or 'honeymoon' periods that can lapse and monthly criteria you must meet. Common conditions include making a minimum monthly deposit, limiting withdrawals, and increasing the account balance by a set amount. If you miss these requirements the bonus rate can drop, so read the fine print and track expiry dates.
As an example from the article: an opening balance of $10,000 plus $200 monthly contributions, with no withdrawals and interest of 4.5% calculated daily over 12 months, would total about $12,920.69 at year end. This shows how regular contributions and a competitive rate compound over a year.
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