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 rate Cash rate
A year ago (Nov 2019) 1.85% 0.75%
Now 0.80% 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)

Bank Account Max Rate Rank by rate Total interest earned Rank by interest earned
CUA Youth eSaver 2.75% 2 $375 1
Auswide Bank Ziggy Kids Saver 2.01% 3 $269 2
Australian Unity Kids Saver 2.00% 4 $268 3
Queensland Country Bank Star Saver 1.90% 5 $254 4
BCU Scoot's Super Saver 1.90% 5 $254 4
Police Bank Dynamo Kids Savings 1.80% 7 $239 6
Newcastle Permanent Smart Saver (Under 25) 1.55% 9 $205 7
Teachers Mutual Bank Mighty Saver 1.55% 9 $205 7
Police Credit Union Beans 1.50% 11 $199 9
IMB Bank Zoo 1.50% 11 $199 9
Geelong Bank YAS Young Achiever 1.50% 11 $199 9
Credit Union SA Childrens Savings 1.50% 11 $199 9
Gateway Bank Dollaroo Kids 1.50% 11 $198 13
Greater Bank Life Saver 1.40% 16 $185 14
Endeavour Mutual Bank Young Saver 1.25% 17 $164 15
Illawarra Credit Union Wildlife Saver 1.70% 8 $164 15
P&N Bank Way Cool Saver 1.10% 19 $144 17
People's Choice Young Saver 1.10% 19 $144 17
Northern Inland Super Saver 1.09% 21 $142 19
Summerland Credit Union SuperSaver 1.25% 17 $134 20
Westpac Bump 0.80% 22 $104 21
CBA Youth Saver 0.80% 22 $104 21
NAB Reward Saver 0.55% 24 $71 23
ANZ Progress Saver 0.50% 25 $65 24
LCU Young & Free Student 3.50% 1 $1 25

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

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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.

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 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.

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.

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.

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.

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.

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 multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.

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.

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.