Children’s saving accounts – which is best for your kid?
Do you remember the ‘Dollarmites’ school savings program that Commonwealth Bank offers to primary schools around Australia?
It still exists—with CBA offering a range of games, downloads, advice and features to encourage children to start saving early and learn the value of money.
But the world of banking has changed considerably since we popped $2 notes (yes, notes) into envelopes before recess to be deposited into our accounts.
We now have digital access to funds, multiple savings account options and the ability to pay using multiple platforms and devices.
It is entirely possible for a youth today to save and spend without ever having to visit a branch.
So, in the modern world, what are the best savings account options available for children once they turn 12?
Recommendations for a savings account for children
The Federal Government’s Australian Securities and Investments Commission’s (ASIC) MoneySmart division has a detailed guide on how to teach kids about money available online.
ASIC’s MoneySmart senior executive Laura Higgins said the key was to find savings accounts designed for kids that reward them for making regular deposits.
“Before you open an account make sure you compare the features, including any account-keeping fees,” she said.
the CBA’s Youthsaver account with Dollarmites ‘club’.
ANZ offers a Progress Saver account for kids,
Westpac has the Bump Savings account,
NAB has a dedicated online page designed to educate parents and children on the value of savings.
Many smaller lenders offer children’s savings products as well.
Commonwealth Bank actually pays schools to come onboard with their Dollarmites program. Learning institutions receive $200 for the first school banking deposit, or if they re-join the program after 12 months out.
Then an annual fee is paid to the school depending on how many children make at least one deposit through the year. Schools receive $100 for 0-100 students making a deposit, $200 for 101-200, $300 for 201-300, $400 for 301-400, $500 for 401-500 and $600 for any volume over 501.
This is topped up with $5 for every 10 deposits a student makes.
So can parents elect to opt out if they don’t their child going through the CBA program?
It can be difficult when the school is getting kickbacks and the children are receiving toys, prizes and games that make them like the program.
What are the tricks and traps to look out for?
Did you know that children’s bank accounts might need to pay tax? This is one of the little things’ parents should look into before opening a child’s savings account, Laura said.
“Look for a basic account that offers no account-keeping fees and no minimum deposit amounts,” she said.
“Make sure you check with the ATO if any interest earned in your kid’s account will be taxed.”
It always pays to check the interest rates offered by the bank as well. Take Bankwest and their Kids' Bonus Saver program, for example. Children are offered a massive 4.75 per cent interest rate but this is slashed down to 0.01 per cent if deposit and withdrawal conditions are not met.
These are complicated as well, with $25 in minimum deposits each month and $250 maximum – with no withdrawals.
ANZ, Auswide Bank, Bankwest, Hume Bank and Queensland Country Credit Union adopt the same practice, while Greater Bank, IMB Bank and Newcastle Permanent will reduce the rate down to zero.
This makes it hard for children to learn about reaching savings goals, as they are punished heavily for withdrawing when they reach these goals.
If a child can adhere to the strict conditions, these are the banks with the kids savings accounts offering the highest maximum interest rates:
Should the child's account be linked to a parents account?
This is a key question many parents have, should the child have full autonomy or should the account be linked to a parents account so they can monitor how things are going?
Laura said this depends on the child’s age, with only older children able to have their account in their name only.
“The options available will differ depending on the age of the kid,” she said.
“For kids under 12 years a parent (or guardian) will need to be an authorised signatory or open the account in trust.
“For kids aged 12 years and older, the account can be opened in their name or as a joint account with a parent or guardian.”
So what happens when the child turns 18?
In most cases, banks will simply open an adult account and move their finances straight into it – the whole exercise of child banking for them is to bring in new customers, after all.
In some cases, though, they will wipe the account and move the funds into a linked account – AKA the parent’s account.
It is important to understand the conditions of the child’s account, as each lender has different cut off ages (some as young as 15) and different outcomes when the child reaches that age.
What other savings advice would you offer to parents for their children?
There are many things you can do to start your child’s savings journey and teach them the value of money.
Starting with a piggy bank before a savings account is a great stepping stone towards the world of savings and banking.
Pocket money is also a great way to teach children the value of earning and saving money.
Laura said opening a savings account is a great opportunity to speak with your kids about the basics of managing money.
“Depending upon the age of your kid, you can start by explaining the difference between needs and wants,” she said.
Then have a discussion about budgeting, to help your kids understand the value of saving versus spending.
“Visit moneysmart.gov.au for more information on teaching your kids about money.”
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007