Can I open a savings account for my grandchild?

Can I open a savings account for my grandchild?

Many Australian grandparents are eager to be part of their grandchild’s upbringing in some way or the other. Whether they help with babysitting duties when needed or just get to enjoy special time with their grandchildren whenever they can.  

Some grandparents also wish to help financially by opening a savings account for a grandchild. But how can a grandparent give a savings account to their grandchild, and does it raise any financial issues?

Nearly all banks or credit unions in Australia have specially structured accounts for children. So in principle, you can set up an account for your grandchild, but you’re not permitted to gift this type of account to a minor. A child will most definitely benefit from such an account, a parent or a legal guardian is just required to open it.

Can grandparents set up savings accounts for grandchildren?

Grandparents in Australia are allowed to open a savings account in the name of their grandchild. These gift savings accounts are managed by the grandparent until the grandchild reaches a mature age to manage it themselves.

Grandparents can either deposit a lump sum in the account or transfer funds regularly. The money in the account will earn interest, and can’t be used for day to day child-rearing expenses to be considered a child’s account. Depending on the account balance, the child named on the account could be subject to tax on the interest earnings.

How a gift savings account for your grandchild works

Let’s say that you’ve decided to open a savings account in the name of your grandchild this year for Christmas with your bank. If you’re the legal guardian, you’re allowed to do so, provided you can show the bank a copy of their birth certificate. You can set up monthly electronic transfers from your account to the account for your grandchild, and they can earn bonus interest over and above the monthly deposit made.

Since your grandchild is the primary account holder and still a minor, you needn’t worry about having to pay taxes on the interest earned, as long as the amount remains below $416. If the value increases, then your grandchild as the primary account holder, will be required by law to file tax returns with the Australian Tax Office at the end of the tax year.

Is there any other financial gift that I can give my grandchildren?

You could consider a high-interest savings account or a term deposit. The rules regarding tax on interest earnings and parental access would be the same. But this is a wonderful way to teach a young child about savings and show them the time and money you need to invest to reach a financial goal.

You could also consider establishing an insurance bond in your grandchild’s name. It works like a managed fund and can help you (and the parents) put aside savings for higher education or other large ticket expenses. You could also enjoy tax benefits when you open this type of savings product as a gift. So you might want to consider holding onto it for an extended period.

Some good gifts for special occasions

Of course, grandchildren can be given gifts on any festive occasion, and even for no special reason. Birthdays or holidays are good occasions for opening a savings account for a grandchild.

Yes, there is a possibility that a bank passbook might not excite your grandchild as much as the latest mobile phone would. They’ll soon realise that the savings account is a gift that keeps on giving. With the established gift of a savings account, your grandchild can then look forward to all the monetary gifts that you’ll give, and watch with glee as the account grows.

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Learn more about savings accounts

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.

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.

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.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

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.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

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. 

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.

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 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

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

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.

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

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.