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Dumping Dollarmites: why CBA’s school banking scheme doesn’t pay

Dumping Dollarmites: why CBA’s school banking scheme doesn’t pay

Parents with children enrolled in CBA’s Dollarmites should send their school a message by switching to a more competitive savings account, according to RateCity.

Victorian schools have now dumped the Dollarmites scheme in favour of curriculum-linked financial lessons.

With three cash rate cuts over the last year, savings rates have plummeted, including on CBA’s Youthsaver, the account kids open in the Dollarmites program.

CBA Youthsaver

CBA Youthsaver max rateCash rate
A year ago (Nov 2019)1.85%0.75%
Now0.80%0.10%
Change-1.05%-0.65%

Which kids accounts deliver the best returns?

RateCity put 25 kids’ accounts to the test, working out how much interest they earn when a child puts $10 a week into the account from kindergarten to the end of primary school, applying each bank’s terms and conditions.

The highest interest rates didn’t necessarily turn into the biggest returns.

The findings:

  • CUA’s Youth eSaver earned the most interest over the seven years from Kindy to Year 6.
  • The account with the highest interest rate (LCU) ranked last in terms of interest earned due to onerous terms and conditions.
  • CBA’s Youthsaver ranked 22nd in terms of rate and 21st in terms of interest earned.

Research Director at RateCity, Sally Tindall, said it was ironic savings accounts designed for children came with some of the most complicated terms and conditions.

“Kids’ savers are anything but child’s play. Many of them are littered with terms and conditions adults would have trouble keeping track of,” she said.

“There are penalties if you don’t deposit enough, there are penalties if you save too much. Some accounts simply stop existing when you hit high school.

“It’s also worth regularly checking to see if your rate is still competitive. It’s a great way to teach your child how important it is to stay on top of your finances,” she said.

News the Victorian government is stepping away from the Commonwealth Bank’s Dollarmites Program and stepping up its own financial literacy programs should be replicated across the country.

“If McDonald’s came into schools to teach kids about healthy eating there would be an outcry. Why do we let the Commonwealth Bank take the reins when it comes to learning about money?” she said.

“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There has to be a better way to teach our kids about money that doesn’t involve kickbacks.

“Australia’s other state and territory governments should follow Victoria’s lead and kick CBA out of the classrooms,” she said.

Common kids savings account traps:

  • Interest rate caps when you hit a certain balance.
  • Age limits – lots of accounts stop as soon as you turn 13.
  • Penalties if you withdraw money.
  • Minimum monthly deposits to qualify for the max rate.

Tips for setting up a kids savings account

  • Plan how much you’ll deposit and withdraw: Start by thinking about how much you or your child are likely to deposit each month and how long you want to save for.
  • Compare the options: A high interest rate won’t necessarily deliver you the best return. Work out how much interest you’re likely to earn based on your circumstances.
  • Read the fine print: Carefully read the fine print to make sure you qualify. If you are unable to meet the criteria, then try another account.
  • Watch for rate caps: Be aware that some accounts only pay the higher rate on balances up to $5K.
  • Keep switching: Rates can and do change at a moment’s notice. Review your saving account every 6 months.

Kids savings accounts – interest earned depositing $10/wk from K to Yr 6 (primary school years)

BankAccountMax RateRank by rateTotal interest earnedRank by interest earned
CUAYouth eSaver2.75%2$3751
Auswide BankZiggy Kids Saver2.01%3$2692
Australian UnityKids Saver2.00%4$2683
Queensland Country BankStar Saver1.90%5$2544
BCUScoot's Super Saver1.90%5$2544
Police BankDynamo Kids Savings1.80%7$2396
Newcastle PermanentSmart Saver (Under 25)1.55%9$2057
Teachers Mutual BankMighty Saver1.55%9$2057
Police Credit UnionBeans1.50%11$1999
IMB BankZoo1.50%11$1999
Geelong BankYAS Young Achiever1.50%11$1999
Credit Union SAChildrens Savings1.50%11$1999
Gateway BankDollaroo Kids1.50%11$19813
Greater BankLife Saver1.40%16$18514
Endeavour Mutual BankYoung Saver1.25%17$16415
Illawarra Credit UnionWildlife Saver1.70%8$16415
P&N BankWay Cool Saver1.10%19$14417
People's ChoiceYoung Saver1.10%19$14417
Northern InlandSuper Saver1.09%21$14219
Summerland Credit UnionSuperSaver1.25%17$13420
WestpacBump0.80%22$10421
CBAYouth Saver0.80%22$10421
NABReward Saver0.55%24$7123
ANZProgress Saver0.50%25$6524
LCUYoung & Free Student3.50%1$125

Source: RateCity.com.au.

Note: Northern Inland Credit Union rate drops from 2.09% to 1.09% on Dec 1. Contact RateCity for the full research, including terms & conditions.

Assumptions/Calculations:

  • Rates are advertised as of 30 November 2020
  • $10 deposits are made weekly on a Monday
  • Assumes child’s birthday is on the 1st Jan of every year

Did you find this helpful? Why not share this news?

This article was reviewed by Senior Finance Writer Liz Seatter before it was published as part of RateCity's Fact Check process.

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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

What are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

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.

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 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.

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 

 

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.

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 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.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

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.

What are the requirements for opening Commbank multiple savings accounts?

Existing Commbank account holders can open additional accounts online You can open multiple savings accounts with Commbank to meet various goals like a down payment for a home or buying a car. 

To open an account, you’ll need the following:

  • An Australian residential address
  • To be 14 years or older
  • A Tax File Number (TFN) or TFN exemption.
  • Tax residency details

If you’re not a current Commbank account holder, you’ll need an Australian driving licence, birth certificate or passport and Medicare card. You may also have to visit a branch if your identity cannot be confirmed online. 

What is a Westpac locked savings account?

The Westpac locked savings account (also known as "Westpac Life") can help customers reach savings goals faster through bonus interest. Customers receive 0.2 per cent standard base interest with a variable bonus rate of 0.35 per cent when the closing balance at the end of the month is higher than the opening balance.

There are some conditions to earn the bonus interest on Westpac's locked savings account, though. First, you’ll need to increase the balance each month either through a deposit or not making any withdrawals, and then link it to a Westpac Choice account and make at least five eligible payments using your debit card. Please consult your bank as to what an eligible payment is.