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Learn more about savings accounts
Financial literacy is a valuable life skill that should be taught to kids as early as possible. One tool you can arm kids with to help them develop their personal finance skills is a savings account.
Kid’s savings accounts are simple to use and understand. They help to teach children what savings are and the value of growing your money. Many lenders provide kids (consumers under 18) with savings accounts while also offering competitive interest rates.
Why open a children’s saving account?
Australian kids are running the risk of falling behind. Around a fifth of Aussie 15-year-olds do not have basic financial literacy, according to a recent OECD Programme for International Student Assessment report. Therefore, it’s crucial to teach kids financial literacy as early as possible so that these skills trickle into all aspects of their life.
Here are several lessons you can teach your kids by opening a savings account:
- Teach kids about income
By storing your kids’ pocket money or chore money into a savings account, they can better understand the concept of a salary or income. A piggy bank may feel like a low maintenance approach; however, it prevents them from learning that you can earn regular “wages” in return for labour or services that are transferred into a bank account.
You can also print off their bank statement and talk it through with them, teaching them basic money concepts such as account balances, when and how the money comes into the account and interest.
- Teach kids about budgeting
A saving account is also a great way to show children how to budget. By storing their pocket money into a kids’ savings account they can then choose whether to spend the money now or save it for something bigger.
ASIC recommends using a “save 50 per cent, spend 40 per cent, donate 10 per cent” rule as a good measurement to help kids understand the concept. Or, you can sit with them and help draw up a budget of how they’d like to split their pocket money.
- Teach kids how to plan for a goal
Whether they want a new toy or a bike, every kid will have something they want to spend their money on. By setting a savings goal, you can help them to develop their patience and get a sense of forward planning. Sit with your child and talk through what their savings goal may be, and how the income they gain through pocket money and simple budgeting will help them to achieve this. If they’re also old enough to understand interest, this is a great opportunity to see it in action.
- Teach kids about over-spending
Everyone makes mistakes and these are still great lessons to learn, especially at an early age. If your child spends all their pocket money in one go instead of putting it towards their savings goal they’ll quickly understand they’re even further away from that big-ticket item. They may feel disappointed, and you may feel tempted to help them out, but the experience will help them to budget better in the future. It’s a lot easier of a habit to break early, before they’re old enough to rack up huge amounts of debt on a credit card.
Personal Finance Writer
Alex is a personal finance writer and PR professional at RateCity, and has been writing about finance for over three years. She is passionate about closing the gender pay and superannuation gap, and aims to help young Aussies to overcome their financial apathy and better manage their finances. Alex has been published in numerous print and online outlets, including Money Magazine, Lifehacker Australia, and Business Insider.
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Frequently asked questions
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 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.
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 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 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.
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.
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.
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
How can I get a $4000 loan approved?
While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:
- Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
- Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
- Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)
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.
Who has the highest interest rates for savings accounts?
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.
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.
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.
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