Ask LH: How Can I Pick A Good Bank Account For Kids?

Hey Lifehacker, I have recently become a dad and my parents have gifted my son some money to start his first bank account. Until now a bank account for him was the last thing on my mind and there are a lot of options out there. Do you have any tips on picking a bank account for a youngster? Thanks, Depositing Dad

Photo: Shutterstock

Dear DD,

As luck would have it, consumer watchdog CHOICE recently conducted an investigation into 26 Australian bank savings accounts aimed at children. The study found that while some banks appear to offer excellent interest rates, there are usually strict conditions and sneaky fees in place that you need to watch out for.

Depending on which bank you plump for, you and your child could be subjected to everything from online transfer fees to “coin counting” fees. Some institutions will also penalise kids for making withdrawals in a bid to keep their dollars inside the bank.

“[Banks] seem quick to punish kids when they reach their savings goal with a savage interest rate cut to withdraw their money,” CHOICE said in a statement. “When you make a withdrawal from kids’ savings accounts from ANZ, CBA, and Westpac, the interest rate for that month drops to a meagre 0.01%."

It could be argued (by the banks, mainly) that the above restrictions teach kids about the importance of saving money, which will serve them well later in life. While that may be true, the majority of rewards and bonuses linked to kids’ savings accounts can only be described as mean-spirited; particularly towards families who are less well off.

“Bonus interest only is paid to those fortunate kids who can afford to make a deposit each month,” CHOICE said. “Some institutions such as Suncorp and BankWest also enforce minimum monthly deposits of $20 and $25 respectively to ensure higher interest payments stay out of reach for most pre-schoolers.”

A minimum deposit of $25 per month? The only lesson learned by kids here is that "The Man" wants to keep ‘em down.

To be honest, you're not likely to receive high interest on savings under a few hundred dollars from any bank. That said, some are definitely less generous than others. For example, Greater Building Society only offers a paltry 0.5% for amounts up to $1000.

The CHOICE report also highlighted sneaky practices such as massive withdrawal fees (CUA takes a $20 fee for making a withdrawal in their branch) and sneaky time-limited interest deals (Bankwest offers kids an interest rate of 5.75% in the first year of joining up, but only 1% thereafter.)

When it comes to choosing a bank account for your child, always be sure to carefully read the small print. Instead of picking the bank with the best interest rate, go for one with fewer fees and no monthly minimum deposit for bonus interest. Likewise, make sure the conditions are feasible for your particular situation (i.e. — there's no point joining a high-interest account if you can't actually meet the requirements.)

Finally, look for a bank that can give your child a face-to-face banking experience so they can actually learn about money, interest and savings. In practice, this means going for one of the "Big Four": National Australia Bank, Commonwealth Bank, Westpac or ANZ.

Of the above, CHOICE rates Commonwealth Bank's Youth Saver account as the best option available — it has a school banking program, there are no fees or minimum deposit requirements and your kid receives actual tangible rewards for making regular deposits (scented pencils, handballs, etc.)

Kids' saving account review [CHOICE]

Cheers Lifehacker

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    My only grief with the "Commonwealth Bank’s Youth Saver" account is that their interest is paid quarterly rather than monthly.

    my son is just over 2 months old, and I have decided to start putting away $10/fortnight away for him so when he is in his 20s, he can use that money to go towards buying a car, or going towards a house deposit..
    I started to look into bank accounts for kids, and in the end I figured the best thing to do is to just transfer the money into the homeloan.. that way the whole family can benefit from it, and it has the best interest rate(saving).
    will keep a spreedsheet with the payments, and at the end of every financial year just work out what my average interest rate has been, and transfer that as interest gained.

    when it comes to money that he gets as gifts, I will put that in under a separate column, that way when he is old enough to want to spend it I can give him money, I know how much other people have given him (money he can spend), and money I have given to him (money that isnt touched until he is old enough)

    Credit unions- the Victorian Teachers Mutual Bank (nee Credit Union) had some great kid saver accounts. There was a small fee once I turned 18, to buy a share and become a member.

    Commbank Dollarmite account for all three with shitty interest, but bonus interest amounts if you only deposit and no withdrawals.

    It is just like I used to have growing up.

    Edit: All birthday money, bonus money, gifted money goes in there as well as a little here and there. So we aim for a $1000 per year per child. So at 18, they should have at least $18,000 to go towards a basic car and maybe start saving towards a holiday or deposit on an apartment/flat

    Edit 2: They don't have access or don't know how much they have.
    If they want money, we buy stuff instead or they will end up getting jobs when old enough in their own account.

    Last edited 07/07/14 4:37 pm

    Don't forget that many institutions offer attractive savings accounts but they cannot be opened in your child's name unless they are 16 or older.

    This is fine, just keep in mind that any interest counts towards your taxable income. Was surprised this wasn't mentioned already.

    Bonds, on the other hand, are CGT exempt when held for 10+ years, I believe, so may be a more attractive option.

    Give your kids a dogecoin wallet
    Much better

    I had a "Dollarmite" account when I was in primary school. I scrimped and saved and put alot of birthday money into it. I think when I went off to school (in the city) I had about $250.
    I forgot about it for a few years, and was only reminded about it when I got a letter from CommBank to say my account was in arrears 'over $100'. They'd changed the terms, put in a monthly fee, and drained the account.
    Would not recommend CommBank.

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