Compare savings accounts for your children

The ability to set practical savings goals and consistently work towards achieving them is an essential skill that you can teach your child from an early age. 

Most parents use piggy banks for kids so they can see the money they're putting away grow into a larger deposit that can be used for purchasing something more significant or special. However, as kids grow, it could help to open a child savings account to introduce them to concepts like banking, savings and interest.

Children’s savings accounts are simple to use and understand. They help to teach children what savings are and the value of growing money. Many lenders provide children (consumers under 18) with savings accounts while also offering competitive interest rates. 

One benefit of getting kids involved with saving is that they learn how to manage a bank account as the account holder. The more they develop their financial literacy, the easier they’ll find it to understand more complicated products and strategies later in life.

With that in mind, a dedicated savings account can be a good way for children to learn about money, saving and banking. You can choose from hundreds of savings accounts that are specifically offered to kids (consumers under 18) to teach them what savings are and the value of growing money.

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.