School banking failing our kids: ASIC report

School banking failing our kids: ASIC report

Consumer advocate, RateCity.com.au, believes state and territory governments should kick banks out of our primary schools, on the back of today’s damming school banking report from ASIC.

Late last month, the Victorian government dumped the Dollarmites scheme in favour of curriculum-linked financial lessons. Bendigo Bank, IMB, Northern Inland and Southwest Credit have or are in the process of terminating their banking programs in light of this review.

Key findings from ASIC:

  • School banking programs say they help children develop long-term savings habits; however, providers could not demonstrate this.
  • In the last financial year, schools received $1.3 million in kickbacks for encouraging banking programs at their schools.
  • School banking is in 63 per cent of primary schools across Australia, with CBA the largest partner.
  • Young children are exposed to sophisticated advertising and marketing tactics by school banking providers.
  • Banks aren’t effectively disclosing that a strategic objective of these programs is customer acquisition.

A RateCity.com.au survey found school banking programs did not improve people’s financial confidence later in life and in some cases, fostered complacency.

RateCity.com.au survey of 1,000 respondents:

  • Just over half of Australians used a school banking program as a child.
  • Of these people, 34 per cent still bank with that same institution as adults – some even into their late 60s.
  • Using school banking as a child made little difference to how confident people felt about managing their finances later in life.

Sally Tindall, research director at RateCity.com.au, said: “This is a damning report from ASIC that exposes the weaknesses of letting banks into our schools to teach our kids about money.”

“School should be a safe environment where kids aren’t exposed to financial marketing and advertising,” she said.

“If McDonald’s came into schools to teach kids about healthy eating there would be an outcry. When it comes to teaching kids about money, parents and teachers should be taking the reins.

“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There must 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 replace school banking with financial literacy lessons.

“Learning about money is a life skill but right now it’s buried in the curriculum. It should be a stand-alone subject,” she said.

ASIC found 61 per cent of parents whose children participate in these programs indicated that they would be “furious if the school stopped school banking”.

“School banking is a convenient way to get your kids to learn about banking, but parents can easily do this at home without being forced to use one specific provider,” she said.

“CBA’s YouthSaver is offering a rate of just 0.80 per cent – parents can teach their kids to do better than this by shopping around.”

Which kids accounts deliver the best returns?

RateCity.com.au 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:

  • CBA’s Youthsaver ranked 22nd in terms of rate and 21st in terms of interest earned.
  • 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.
Rank by interest earned Bank Account Max Rate Total interest earned
1 CUA Youth eSaver 2.75% $375
2 Auswide Bank Ziggy Kids Saver 2.01% $269
3 Australian Unity Kids Saver 2.00% $268
4 Queensland Country Bank Star Saver 1.90% $254
4 Police Bank/Bank of Heritage Isle Dynamo Kids Savings Account 1.80% $239
6 BCU Scoot's Super Saver 1.75% $233
7 Newcastle Permanent Smart Saver Account (Under 25) 1.55% $205
7 Teachers Mutual Bank Mighty Saver 1.55% $205
9 IMB Bank Zoo 1.50% $199
10 Gateway Bank Dollaroo Kids Account 1.50% $198
11 Credit Union SA Childrens Savings Account 1.40% $185
12 Greater Bank Life Saver 1.40% $185
13 Geelong Bank YAS Young Achiever Savings Account (S50) 1.30% $171
14 Illawarra Credit Union Wildlife Saver 1.70% $164
15 Police Credit Union Beans 1.20% $158
16 The Mutual Mighty Mutual 1.05% $152
17 P&N Bank Way Cool Saver 1.10% $144
17 People's Choice Credit Union Young Saver Account 1.10% $144
19 Northern Inland Credit Union Super Saver 1.09% $142
20 Summerland Credit Union SuperSaver 1.25% $134
21 Westpac Bump 0.80% $104
21 CBA Youth Saver 0.80% $104
23 NAB Reward Saver 0.55% $71
24 ANZ Progress Saver 0.50% $65
25 Laboratories Credit Union Young & Free Student Account 3.50% $1

Source: RateCity.com.au.

Assumptions / Calculations:

  • Rates are advertised as of 15 December 2020.
  • $10 deposits are made weekly on a Monday.
  • Assumes child’s birthday is on 1st Jan of every year.

How to give yourself a financial health check

  • Start by comparing rates: on your home loan, credit card and savings accounts, interest rates can vary widely – even between the rates for new customers versus loyal existing ones at the same bank.
  • Talk to your lender: negotiate on your rates and fees. You’ll have greater bargaining power if you’ve done your homework first and know what’s available from the competitors.
  • Don’t be afraid to switch: the banks have streamlined the process of refinancing in recent years making it faster and easier than before. Refinancing can save a borrower thousands. For a few hours of work on your behalf, it is likely to be the best return on time you’ll get this year.
  • Review your bank products regularly: A lot can happen in the mortgage market in a year, as 2020 has taught us. So set a reminder annually and make it a financial health check day.

How to find a competitive rate for your child

  • Plan how much you’ll deposit and withdraw:Start by thinking about how much you or your child are likely to deposit each month. Consider if you are likely to make any withdrawals.
  • Compare kids savings accounts: Look at the top rate kids’ savers on a comparison site.
  • Read the fine print: Carefully read the fine print in line with your personal circumstances. If you are unable to meet the criteria month to month, 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: Review your saving account every 6 months.

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Learn more about 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.

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 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.

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 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 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.

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.

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.

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 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 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

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.