High Interest Savings Accounts (HISA)- all you need to know

What is it?

It is a type of savings account that you can put money into and it will grow in value. It is considered “High Interest” because it typically will pay out around 2-5% per year – hovering close to the Reserve Bank of Australia’s (Australia’s central bank) official cash rate.

A typical or regular bank account may pay none or no none- 0.01-0.05% interest on the balance (close to nothing).

Sounds like free money right? In a way it kind of is.

Is it safe to put my money in these?

Yes, it is generally extremely safe to put your money into savings accounts in Australia.
These accounts are protected by the Financial Claims Scheme, fancy scheme name but basically the government protects up to $250,000 per person per bank if things go to crap with a bank.
What’s the likelihood of a bank going to crap? Extremely unlikely. And even if this does happen, we might have other things to worry about rather than how much money we have in the bank.

How does it work?

You put/transfer money into an account within your banking, generally every month – the balance on this account will increase based on the interest rate advertised.

Case Example of HISA

Kristine has scrimped and saved $10,000 and she puts this into her HISA.
The interest rate is 5%
One year later she checks the account balance and it has gone up to $10,500
Hallelujah Kristine made $500 and she didn’t even have work for it

Case Example of using a Normal Savings Accounts (Not a HISA)

Kristine’s sister Trish has scrimped and saved $10,000 and she puts this into her regular savings account.
The interest rate is 0.1%
One year later she checks the account balance and it has gone up to $10,010

Do I have to pay tax on money I earn from interest?

Yes, any interest earned in a savings account is considered income by the Australian Tax Office. Depending on your marginal tax rate, tax is payable on this interest.
In the example above, even if Kristine pays 30% tax on the $500 interest – she’s still miles ahead of Trish.
Kristine ends up with $10,350 and Trish ends up with $10,007 – a whopping $343 extra buckaroos for doing close to absolutely nothing.

How do I open one?

Step 1: Research which bank you want to go with.

I personally like ones that don’t have too many hoops (eligibility conditions) on them and are set and forget.
Step 2: Once you find a bank that resonates with you (or check out my post on my Top 3 High Interest Savings Accounts I would use) – sign up via their website.
Step 3: Have your ID ready and personal details and your account will be created in less than 5 minutes
Step 4: Transfer money to the HISA via bank transfer
Step 5: Watch your money grow