Kids accounts: Find a piggy bank with real grunt

Kids accounts Find a piggy bank with real grunt

Some children’s savings accounts pay next to no interest so make sure you find your little ones a winning piggy bank, writes Jackie Pearson.

December 1, 2009

The notion of saving for our children and encouraging them to save has certainly gained popularity recently. The global financial shocks of the past couple of years have taught us that it’s always a good idea to have some money tucked away for a rainy day.

However, there are big differences between the savings accounts available for children. It’s worth shopping around for an account that pays enough interest to encourage your child to save. Here are the features to look for when comparing accounts.

The interest rate
Choose an account that pays the highest possible rate, even on low balances.  Of the 36 children’s savings accounts included on RateCity, only half have a maximum interest rate of 2 percent or more. Some have maximum rates as low as 0.50 percent.

Selecting the account currently offering the highest interest rate instead of the lowest can make a substantial difference to your child’s balance over a five year period.

Let’s assume you start with $1,000 and deposit $20 per week for five years. At a high 4.25 percent the account balance would grow to $2,571, earning your child $371 in interest. If you elected an account paying 0.50 percent, interest earned would be only $40 – that’s $331 less!

The restrictions
A high interest rate like 4.25 percent sounds attractive but there are restrictions. Many kids’ accounts have a low base interest rate but pay bonus interest to reward good savings behaviour. With the Suncorp account, for example, you have to deposit $20 each month to receive the full rate. So be careful to check the fine print about when and how interest will be paid.

Fees and features
The good news is that none of the children’s savings accounts currently available have account keeping fees. However, you may be charged for certain types of transactions with some accounts. The most common is for over-the-counter withdrawals but there are kids accounts that charge for EFTPOS and ATM withdrawals.

They all have age restrictions and can usually only be kept open until the saver turns 18. And there are different rules about how much access the parent and child has to the account at different ages.

Most allow the account to be opened with as little as $1. Only 12 accounts provide ATM or EFTPOS access. Phone and internet access is more popular, offered by 30 of the accounts.

So if you’re looking for a kid’s savings account it’s not necessarily wise to stick with the same old brand. The differences in fees and interest rates means it’s well worth taking the time to shop around.


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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.