Kids' saving accounts review

Kids' accounts are teaching kids some surprising lessons about banking
 
Learn more
 
 
 
 
 

01 .Teaching kids about money

Kid holding $100 note

Our review of 26 savings accounts designed for children and teenagers assesses the interest rates, fees, withdrawals allowed per month, and age limits.

In this article:

You would think that opening a bank account would be a great way to introduce your kids to the concept of saving and financial literacy. You’d expect banks would make kids’ savings accounts as simple as possible – but our comparison found some very confusing conditions.

  • The good news is that the vast majority of kids’ savings accounts offer good interest rates, close to the rates currently offered by high-interest online savings accounts. 
  • The bad news is that there are complex conditions attached to these good rates. They’re usually only available if you make at least one deposit per month, and the minimum deposits can be more than what your child receives in pocket money. To get the bonus interest with Bankwest’s Kids’ Bonus Saver account, for example, the minimum deposit is $25 per month.
And there’s another nasty sting with these accounts: once your child reaches their savings goal and withdraws their money, they’re often hit with a huge interest rate cut. If they make a withdrawal from the kids’ savings accounts from ANZ, CBA and Westpac, for example, their interest rate for that month drops to a meagre 0.01%.

And it gets worse:

  • CUA charges kids a hefty $20 fee for making a withdrawal in their branch. 
  • Bankwest's savings account may actually teach your kids that banks can’t be trusted: after paying the best interest rate for one year, they sweep all but $1 into a low-interest account paying just one per cent for amounts below $3000.
  • Banks can be greedy is another lesson kids may learn from the coin-counting fees charged by a range of institutions. While the majority of banks and credit unions don’t charge these fees to customers or exclude kids from the piggy bank fees, others don’t make this clear. 
  • Suncorp, for example, has a five per cent coin-counting fee. The bank told us they wouldn’t charge kids this, but we couldn’t find this assurance in any of the public official material (though we were told it’s noted in their internal procedure manual). We don’t think that’s good enough – just imagine your child was charged this fee in error. That would be such huge discouragement for little savers.

On top of this, the ATO pays close attention to kids’ income from interest, and high tax rates apply.

CHOICE verdict 

When it comes to kids’ bank accounts, look beyond the interest rate and make sure the conditions suit you and your child. The two accounts with the highest rates, CUA and Bankwest, both have big disadvantages.

In the end you may be best off with one of the big banks, as they give you the best chance for your child to get a face-to-face banking experience in one of their branches. ANZ, CBA and Westpac all charge no fees for kids (NAB no longer offers a specific children’s account). The Commonwealth Bank also offers an educational school banking program that has been adopted by almost half the primary schools across Australia. 

Online tools for teaching kids about money 

iTunes apps:

See our report on Money apps.

Websites

For more information about saving money, see banking.

 

 
 

Sign up to our free
e-Newsletter

Receive FREE email updates of our latest tests, consumer news and CHOICE marketing promotions.

 

02.Tops and flops: kids' bank accounts

 
Stack of coins

Top accounts

Commonwealth Bank (CBA): Youth Saver

Pros
  • School banking program: If your kid’s school is one of the 47% of primary schools offering the CBA’s program, encourage them to participate in it.
  • The school banking rewards program is based on the number of deposits rather than the amount deposited. So whether your child deposits five cents or $5 on school banking day that week, they’ll receive a rewards token.
  • After 10 school banking deposits, children can choose a reward, ranging from a moneybox to scented pencils or a handball. 
  • The schools receive a commission of $5 per account activated plus five per cent of the money deposited
  • Large branch network.
  • While a deposit is required for the bonus interest, there is no minimum.
  • No fees.
Cons
  • Base rate is only 0.01%; bonus rate (one deposit per month and no withdrawals) is 3.81%.
Suncorp: Kids Savings Account 

Pros
  • Reasonable base interest rate of 1.5%; bonus interest rate is 4% if you make a deposit.
  • The only account with a bonus interest rate that also allows one withdrawal per month without an interest rate penalty.
  • No fees.
Cons
  • One of the highest minimum monthly deposits – $20 for the bonus interest rate.
  • Suncorp charges a five per cent coin-counting fee. The bank has assured us they won’t charge this for your kid’s piggybank, although there’s no exception noted in their public official material.
Westpac: Reward Saver

Pros
  • Large branch network.
  • While a deposit is required for the bonus interest, there is no minimum.
  • No fees.
Cons
  • Base rate is only 0.01%; bonus rate (one deposit per month and no withdrawals) is 3.71%.
ANZ: Progress Saver (Kids) 

Pros
  • Large branch network.
  • No fees.
Cons
  • Base rate is only 0.01%; bonus rate (one deposit per month and no withdrawals) is 3.71%.
  • Minimum required deposit for bonus interest: $10/month.

Flop accounts

Nasty conditions for little savers: Bankwest Kids’ Bonus Saver

Unfortunately we found that the account with the most generous interest rate on offer, 5.75%, is also the most complex one:

  • Maximum opening deposit of $250. 
  • Each month you must deposit at least $25 but not more than $250.
  • If you make any withdrawals, the interest drops to 0.01% in that month.

And there is a big catch with this account. At the one-year anniversary of the account, all but $1 is automatically transferred into the Bankwest Children’s Savings Account, which has a very low interest rate:

  • 1% up to $2999 
  • 2% up to $9999
  • 2.70% up to $19,999
  • 4.5% for amounts above $20,000

Tip: If you still want to make use of the Bankwest Kids’ Bonus Saver’s generous interest rate in the first year, transfer the money from the low-interest Children’s Savings Account into an account with a better rate.

Little kids, big fees: CUA Youth eSaver

At first we did not trust our eyes when we read that children are charged $20 for a branch withdrawal. But alas, there’s no need for new spectacles. CUA sees this account as an online savings account only and obviously wants to discourage kids from coming into the branch. 

It’s a shame, because this account would otherwise have found a place on our recommended list. It pays 5.05% interest for the first $5000 and 3.25% for any amount above that, and does not require a monthly deposit.

Penny pinchers

The wooden spoons for the lowest interest rate for balances up to $500 go to: 

A dishonourable mention in this category also goes to IMB Reward Saver Kick Start. This account pays zilch interest in a month unless a $20 deposit is made. But this at least is arguably a bit more honest than most other accounts, that pay a pitiful interest rate of 0.01% if you don't qualify for bonus interest.

03.Kids' bank account comparison table

 

How to use the table

You can arrange the table by the following criteria:

  1. by institution
  2. by maximum age
  3. by base interest rate for $500 account balance
  4. by total interest including bonus interest for $500 account balance
  5. select up to five accounts to compare their features

Allowance for some fee-free withdrawals Some institutions - usually credit unions - give their members a credit for fees. This could be a dollar amount, $10 for example, or could be one of a number of tiered amounts, depending on your relationship with the institution. For example, the higher the number of accounts, or amounts deposited or borrowed, the higher your fee credit might be. 

Compare products

 
Table Allowing the user to select a number of products dependant on their filter options.
Items to compare

Select up to 5 items below.
Then click the compare button

Compare
 
Max ageBase interest rate for $500Total interest including bonus for $500Monthly deposit for bonus interestWithdrawals allowed for bonus interest?Account keeping feeBranch withdrawal feeOnline access? *Online transfer fee*ATM accessOwn-ATM feeCoin counting fee**Allowance for some fee free withdrawals?Brand
               
no image available180.01%3.71%$10NoneNoNoANZ
no image available182.50%2.50%NANANoYesBank of Sydney
no image available250.25%3.75%$10NANoYesbankmecu
no image available181.50%1.50%NANANoNoBankVic
no image available151.00%1.00%NANANoNoBankwest
no image available150.01%5.75%25NoNoNoBankwest
no image available172.30%2.30%NANANoYesBeyond Bank
no image available122.30%2.30%NANANoYesBeyond Bank
no image available180.01%3.81%No minNoNoNoCBA
no image available110.50%0.50%NANANoNoCommunity First
no image available170.10%0.10%NANANoNoCommunity First
no image available172.05%2.05%NANANoYes $20CUA
no image available162.25%2.25%NANANoNoGateway CU
no image available180.50%0.50%NANANoNoGreater BS
no image available110.75%3.75%$10NoNoNoHume BS
no image available120.25%0.25%NANANoYesIllawarra CU
no image available180.00%3.00%$20NoNoYesIMB
no image available120.10%3.10%$10NoNoNoIMB
no image available182.00%3.50%$5NoNoYesPeoples Choice CU
no image available180.50%0.50%NANANoNoQueenslanders CU
no image available180.50%0.50%NANANoNoSCU
no image available130.50%0.50%NANANoNoSCU
no image available181.50%4.00%$20Yes - OneNoNoSuncorp
no image available172.00%2.00%NANANoYesVic Teachers Mut Bank
no image available210.01%3.71%No minNoneNoNoWestpac
no image available120.01%3.71%No minNoneNoNoWestpac
Compare

Source: Mozo.com.au as at 24 June 2014

* Online access may be access for viewing only and not allow any transfers and/or only the parent may be allowed to transfer money.

** Coin counting fees are listed according to the fees brochure on the institutions' website. Therefore it's a good idea to confirm with the institutions. 


kids_accounts2

Too fat a piggy bank can be a problem. Once kids earn more than $416 in interest on their savings account within one financial year, steep tax rates apply. 

  • interest above $416 up to $1307 are taxed at 66%. 
  • interest above $1307: the whole amount is taxed at 45%. 
  • no Medicare Levy applies so long as the child’s income is below the low-income threshold ($20,542 in 2013-14). 
  • once the income is above $416, the child must also lodge a tax return.
  • depending on the interest rate, $416 interest could be paid on an account balance of between $7000 and $11,000.
Exemptions apply for children: 
  • who work full-time, or 
  • with certain disabilities.

Other income, such as from a part-time job, is taxed at normal rates. The low-income tax threshold also applies to this income, but not to the interest earned.

The ATO also has strict rules about whether the income belongs to the child or the parent. The ATO considers the interest to be your income, and so it must be declared on your tax return, if you:
  • transfer money into the account 
  • use some of it, even for the child or on their behalf (for example, to pay for child care or school fees)

For the interest to apply to your child, the money must be genuinely gifted to them and you must not intend to use it. For more information, check with the ATO on 13 28 61 or ato.gov.au

Your say - Choice voice

Make a Comment

Members – Sign in on the top right to contribute to comments