What are Interest Rates?
Have you ever seen online ‘money experts’ continuously talking about high-interest savings accounts but not explaining what these accounts do or what interest means? Understanding interest rates and how, with the right account for you, can help grow your money is a great first step into managing your finances. In this piece, we explain what interest rates are, why they can fluctuate and a way you can find out the highest interest savings account where you live.
What Exactly Are Interest Rates?
Interest rates can be seen as a reward for saving money over time. When you deposit money into a savings account at a bank, they pay you interest for letting them hold onto your cash. On the other hand, when you borrow money- for the likes of a mortgage or a personal loan- you pay interest to the lender for the privilege of using their funds. When you deposit money into a savings account, the bank pays you interest on that money. A higher interest rate means your money grows faster over time. For example, if you have $1,000 in a savings account with a 0.5% interest rate, you'd earn $5 in interest over a year. But if you had the same $1,000 in an account with a 2% interest rate, you'd earn $20 in interest over the same period.
Why Do Interest Rates Change?
Interest rates can go up or down based on a few things:
The Economy: Higher interest rates typically help to control inflation by making borrowing more expensive. This reduces people's spending and investing, which can help balance out a strained economy.
Central Banks: Governments and central banks can also change interest rates to control inflation (how prices change over time) and stimulate the economy. If they want to encourage people to spend more, they might lower interest rates. If they want to slow down spending, they might raise them.
Different Types of Interest Rates:
Fixed vs. Variable: A fixed interest rate stays the same for the whole loan period, while a variable rate can change over time based on the market.
Nominal vs. Real: Nominal interest rates are the ones you see advertised (like 5% per year), while real interest rates take inflation into account (how much the value of money changes over time).
How Can I Make Money with the Best Bank Interest Rates?
Now, let's get to the exciting part, how you can make money by choosing banks that offer the best interest rates in Australia and New Zealand.
Research and Compare Savings Accounts
It's like shopping for the best deal on a new phone, but instead, you're shopping for the best interest rates. Start by researching banks and financial institutions that offer high-interest savings accounts or term deposits. This is where apps like the GLOSS Vault app can be your own personal assistant- we can show you which banks are offering the highest interest rates and compare that to how much you are currently earning. If there are banks out there offering more interest with their savings accounts, we’ll show you the difference and how much more you could be making in just a couple of clicks!
Understand What You’re Signing Up To
Before you commit to a savings account or term deposit, make sure you know what you're signing up for. Look out for details like minimum deposit requirements, any fees for withdrawals, and how often they compound your interest (hint: the more frequent, the better for your savings!).
Monitor and Adapt
As we discussed earlier, interest rates aren't set in stone. Keep an eye on the market trends and be ready to move your money if you find a better deal elsewhere. Regularly reviewing your savings strategy can ensure you're always earning the maximum returns. If you’re now asking “How do I keep up to date with any changes?!” don’t worry, I can provide you with a great option. The GLOSS Vault app! We have a team of experts checking and updating changes to interest rates across Australia and New Zealand. This means all you have to do is sign in to your Vault account and the information you require will be in front of you. The GLOSS Vault app saves you time, stress, and an endless amount of Google tabs. We help you gain knowledge quickly and efficiently leaving you with a clearer understanding of which bank works best for your circumstances.
Summary
Understanding and leveraging interest rates is like having a secret weapon in your financial arsenal. By choosing banks with the best rates where you live, you can watch your savings grow faster and reach your financial goals sooner.
So, whether you are saving up for your own personal goal, building up your emergency fund, gaining knowledge on important financial terms like interest rates will help you make the most of your money.
Here at the GLOSS Vault, we have made it our mission to help as many people like you across Australia and New Zealand feel in control of your money and ensure you’re getting the most out of it. To find out more about us and what we do click here. If you’d like to see our app in action for yourself head here!