Interest rates
Most children or youth savings accounts tend to offer bonus interest rates to encourage children to save. However, that doesn’t mean all kids savings accounts offer competitive interest rates. Bonus interest rates are generally offered on meeting certain criteria, like having a minimum balance or a limited number of withdrawals per month.
Check the standard interest the account will earn if the criteria for earning bonus interest is not met. You may be surprised to find this figure lower than the standard interest rate offered on regular savings accounts by some banks.
Caps on overall balance
When you compare savings accounts for children, you may find that some providers will advertise very high interest rates. However, watch out for any caps on the overall balance that may prevent you from earning the higher interest rate. For instance, a bank may stop paying you a high interest rate and only pay you the standard variable rate once your total funds exceed a specified limit. You should also watch out for sweeping accounts.
Sometimes, banks offer a high interest rate on the primary savings account. However, they will transfer the entire balance into a linked savings account at the end of a set period (usually a year) so that you need to build the savings in the high interest account from scratch. The linked account often earns interest at a lower rate.
Access to funds
As your children build their savings, they may want to use it for purchasing things and put money in and out. Therefore, an account with non-restrictive conditions around deposits and withdrawals may be a good choice for them. However, there’s a trap you need to watch out for.
When you compare children’s accounts, you’ll find that most of them allow free monthly deposits and withdrawals, including ATM withdrawals and even EFTPOS (electronic funds transfer at point of sales) spending with a debit card. Some may also offer online banking, mobile banking apps or similar smart options. This is also known as a conditional savings account.
But are the free withdrawals really free of cost - it’s something you need to check in the tricky terms and conditions.Look closely and you may find that the high bonus interest is only payable for months in which no withdrawals (or a minimum number of withdrawals) are made.
When you read the PDS, you’ll notice that such accounts offer two types of interest rates - a bonus rate when you meet specific conditions and a relatively low base rate of regular interest when you don’t meet the conditions for earning the bonus rate. So, even though the withdrawals are free, you are, in a way, paying to use your own money by earning a lower interest rate on it. Also check for any monthly account fee that may be payable for using a debit card facility or internet banking.
Kid-friendly educational resources
Many banks provide kid-friendly educational resources like colourful graphs, interactive videos and games to help children learn the basics of personal finance. While this is not a substitute for what you teach your child at home, such resources can augment their education and make finance fun for kids. As kids' savings accounts are different, it's important to compare the options and work out which one may be the best choice for your child.
One quick and simple way to compare children's savings accounts at RateCity is to look at their Real Time Ratings™ - a regularly-updated star rating that looks at the cost and flexibility of different financial products. You must also always read the product disclosure statement (PDS) closely before opening a savings account to avoid getting hit by any hidden fees or charges.
