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
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]
Got your own question you want to put to Lifehacker? Send it using our contact form.