If you think of a public-sector superannuation fund as a gourmet meal, then retirement savings accounts are more like a tin of baked beans.
The accounts, which have been around for about six years, are basically a safe, no-frills alternative to stash your cash for later years.
But unlike other super funds, life insurance and total and permanent disability insurance are usually optional garnishes rather than an automatic benefit. Returns also tend to be less than 5 per cent and you often need a balance of at least $10,000 to start earning top rates.
But there is a lot to be said for these modest returns at a time when many super funds are in negative territory.
Depending on your balance, the fees can be minimal. If you have a $10,000 balance with National Australia Bank, for instance, you will pay no account-keeping fees. This compares with the 1 per cent, or $100, annual cost of a cash option offered by a superannuation fund.
Also, as a member-protected fund, government regulations specify that fees cannot exceed interest earned if the account balance is under $1000 at the time the charges are deducted. The other plus is that the Superannuation Complaints Tribunal reports that few complaints have been lodged about RSAs or their providers.
However, this may partly be because they are a drop in the ocean among Australia's $520 billion in super assets. Despite their simplicity, RSAs have attracted only about $460 million into their coffers.
This may be due to the fact that they are rarely advertised or promoted by the banks and that there is no incentive for financial planners to recommend them.
Andrew Willink, managing director of research group Cannex, says the fact that financial planners do not earn any commission on these products means they tend to be "less well known".
Basil La Brooy, community education officer at the National Information Centre on Retirement Investments, believes RSAs are likely to appeal people close to retirement who want to protect their capital from stockmarket volatility, and those who want to place into super some money received from the sale of a property or an inheritance. RSAs may also be useful for casual workers who move around a lot, have several employers and accumulate small amounts in super.
Mr Willink suggests younger people in this position should look at transferring their money into a super fund with more aggressive investment options once their RSA balance has reached, say, $25,000.
But RSAs are not suitable for everyone. Their rates look attractive, compared with the negative returns posted by most super funds during the past year, but they are not ideal for someone who is years from retirement.
The National writes to customers when they have $10,000 in their RSA to ask them if they have considered other super options.
The highest rate offered by these accounts is Westpac's 4.75 per cent, and over the longer term this is likely to be easily outstripped by super funds with the bulk of their assets in growth assets, such as shares and property.
If you are in the market for an RSA, it is worth doing some legwork before deciding on one. Their tiered interest rate structure means that it is important to look for one that will maximise the returns on your balance. Someone with just $500 will get the highest return from ANZ at 3.3 per cent and the lowest at St George, which offers no interest when the balance is below $1000.
However, should the account holder have $10,000, they would be better off opting for Westpac, which offers 4.75 per cent compared with 3.3 per cent at ANZ.
It is also important to look at the way fees are imposed. ANZ imposes an annual fee of $62.24 if the balance is more than $1000, while Westpac will waive its $2 monthly account-keeping fee when the balance is more than $1000. The National waives its $2.50 monthly account-keeping fee if the balance is more than $10,000.
Be on the lookout for any potential sting in the tail if you plan to transfer your money to another RSA or superannuation fund. The National imposes a $30 transfer fee unless the person is retired, the account balance is greater than $10,000, the account holder dies or is permanently disabled, or the balance is being transferred to another National product.
Finally, check how frequently interest is paid. Most pay quarterly but Westpac pays interest monthly.
