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!
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.