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

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.

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.

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.

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 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

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)

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.

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.

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 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.

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.