Transaction Accounts vs Savings Accounts

Savings and transaction accounts are designed for two different purposes, but in a world of online banking it can sometimes be hard to distinguish the differences between the two. The easiset way to think of it is with the name. Transaction means incurring an expense, it's where you spend your money. Savings account is where you hold onto it, deposit funds and accrue interest.

What is a transaction account?

A transaction account is a fund you use for day-to-day purchases. These bank accounts give you easy access to your funds and come with debit cards, which can be used for purchases at bricks-and-mortar stores, online shopping and withdrawing money from ATMs. Accounts allow you to set up direct debits and pay bills. You can open a transaction account whether you’re a business owner, child, student, pensioner or anyone in between. Because these accounts give you free rein over your cash, you’ll earn little to no interest on your balance.

What is a savings account?

A savings account is an interest-bearing fund which gives you a safe place to store money you’re not using. Accounts also come in many shapes and sizes with options fitting various savings goals, such as term deposits and online savings accounts. These accounts make access to your money a bit tougher, often by imposing account requirements tied to earning a bonus high interest rate. The way interest is calculated on a savings account involves using a percentage rate against your balance. This interest is generally accrued daily on a standard savings account and paid monthly.

What are the key differences between these accounts?

Interest

Among the many advantages of a savings account is that you can earn a modest return on your money compared to a transaction account, where you likely won’t earn anything back. The better your interest rate and the longer you save, the more you’ll earn on your balance. For example, if you deposited $1,000 every month in an account earning 1% p.a. over five years, you’d earn $1,499 in interest. However, if your rate was 2% p.a., your interest return more than doubles to $3,047 over the same period. Comparing with Savvy will allow you to find the best interest rate to grow your savings. You can use our savings calculator to simulate how much interest you could earn.

Withdrawals

Everyday bank accounts give you the freedom of 24/7 access to your funds, including being able to pay bills via BPAY. Savings accounts, on the other hand, often lack the same freedom. You could lose any interest earned for the month or have to pay fees if you withdraw more than your institution’s limit. Some banks give you the option of a locked savings account to restrict access to your cash until your term has matured. Financial institutions will often require you to open a linked everyday account where you can transfer funds for spending.

ATM access

When you open a transaction account, you’re given an access card which can be used to withdraw money from ATMs. A savings account won’t come with a debit card unless you link it to a new or current everyday account, meaning you won’t be able to make direct purchases from that account beyond transferring your funds to another.

Bonuses and special offers

Some savings accounts offer bonuses for meeting minimum monthly account requirements. By meeting balance, deposit and withdrawal conditions, you can earn a high bonus interest rate of up to ten times your standard rate or more. Banks also offer introductory rates which give account holders high interest for up to six months before reverting to a much lower rate. By comparison, transaction accounts can reward you with cashback offers, frequent flyer points and discounts on restaurants and popular brands.

Fees

Transaction and savings accounts have a similar fee structure, with monthly account fees of up to $5 across both funds. These fees can be waived if you meet account conditions such as minimum deposits or spending, depending on the account you open.

Top tips for choosing which account to open

• Good interest rates

  When it comes to deciding which transaction and savings account to open, comparing with Savvy makes the process fuss-free. By providing easy-to-use comparison information, calculators and handy tips, you can take the headaches out of making a decision over which type of savings or everyday account you open.

• Watch out for costs

  While savings accounts do tend to be fee-free, it’s still important to triple-check the one you want has minimal ongoing costs. This prevents your interest from being eaten up by charges. Bank accounts tend to have a few more charges to watch out for, including staff-assisted transaction or excess withdrawal fees, which can total $2.50 each.

• Look at bonuses and extras

  Everyday accounts may come with a raft of fringe benefits such as discounts on popular businesses, while savings accounts may offer a ‘round up’ feature. The latter rounds up purchases on a linked account to the nearest dollar and transfers the extra into your savings. These bonuses vary on both accounts, so it’s worth comparing them to find one that offers extras which are useful to you.

• Know what you can deposit

  Transaction and savings accounts tend to come with minimum deposit requirements so you can either save on fees or earn bonus interest. Consult your budget and check your current income can easily cover the conditions. If you’re opening an account with a savings target, you can use Savvy’s goal calculator to work out how much you need to deposit to reach your target.