Kids' bank accounts

Changes to tax rules mean little savers can be hit with a big tax bill.
 
Learn more
 
 
 
 
 

01 .Introduction

Kidsbankaccounts3

Our review of 10 savings accounts, designed for children and teenagers, assesses the interest rates, fees, number of withdrawals allowed per month, and age limits.

In this article:

Opening a bank account for your child is a great way to introduce them to the concept of saving and what banking is all about. 

You’d think banks would make children’s accounts as simple as possible, but having checked a number of them, CHOICE has found out some very confusing conditions.

Government generosity is also limited. Since 1 July 2011, the low-income tax offset no longer applies to interest earned by children. This means taxes apply if they earn more than $416 in interest, to discourage parents from putting money into accounts under their child’s name. 

Most kids’ accounts from banks we looked at offer reasonable interest rates, but we found some low rates when looking at some credit union kids’ accounts. 

It’s worth noting that regular savings accounts can also be relevant for children’s savings. Online savings accounts are a good alternative for teens. ANZ Smarty Pig is available for kids aged 12 years and older, and ING Savings Maximiser for kids aged 13 and older. Check out High-interest savings accounts.

For more information about saving money, see Banking.

Let’s go to school

CBA’s School Banking Program, in which kids can deposit money weekly at their school, has been running for 80 years and has more than 3100 primary schools participating. 

Its Rewards Program is based on the number of deposits rather than the amount deposited. The schools receive a commission of $5 per account activated plus five per cent of the money deposited.

Tip: The CBA Youth Saver offers less interest than other kids’ accounts, but by letting your child participate if their primary school offers the School Banking Program, you can encourage them to save in an easy-to-understand way.

 

 
 

Sign up to our free
e-Newsletter

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

 

Please note: Interest rates are current as of May 16, 2012.

Childrens Bank Accounts
  Total interest
including
bonus
Monthly
deposit
needed for
bonus interest
Withdrawals
allowed for
bonus interest
Base interest
rate
Maximum age
(years)
ANZ Progress Saver  5.26%
 $10
 None  0.01%  18
Bankwest Children’s Savings  1%  na
 na  1% (F)
 15
Bankwest Kids’ Bonus Saver (A)  8.01%  $25 min,
 $250 max
 None  0.01%  14
Bendigo Bank Piggy Bank Passbook  1.3%
 na  na  1.3%
 13
CBA Youth Saver (B)  4.26%
 Yes
 None  0.01%  18
NAB Smart Junior Saver  4.1%  Yes
 None
 1%  18
St George/BankSA Incentive Saver (C)  4.95-5.8% (D)  Yes
 None  0.5%  na
Suncorp Kids Savings  4.75%
 $20
 Yes (E)
 1.5%  18
Westpac Kids Reward Saver  5.35%  Yes
 None  0.5%  12 (G)
Westpac Youth Reward Saver  5.35%
 Yes
 None
 0.5%  21
 
TABLE NOTES (A) Maximum opening amount is $250. After 12 months, amounts over $1 in this account are swept to the linked Bankwest Children’s Savings account. (B) Dollarmites Club for children under 10 years. (C) Transaction fees apply – only one free withdrawal; staff-assisted withdrawals $2.50; ATM 60c. Happy Dragons Club for children under the age of 13. (D) 4.95% in NSW, ACT, SA and NT, and 5.8% in Qld, Vic, WA and Tas. (E) Once a month. (F) Higher interest rates for balances above $5000 (2%) and above $10,000 (4.5%). Interest based on the lowest account balance in a month. (G) Automatically converted into Youth Rewards Saver when age limit is reached. na Not applicable.

Piggy bank interest rates

Most kids’ accounts from banks we looked at offer reasonable interest rates. Aside from Bankwest (see below), the best we found is 5.35% with the Westpac Kids/Youth Rewards Saver account and 5.8% with St George in Queensland, Victoria, WA and Tasmania. The wooden spoon goes to the Bendigo Piggy Bank Passbook Account, offering a measly 1.3% interest. We found similarly low rates when looking at some credit union kids’ accounts.

With almost all accounts we looked at, the interest rate consists of a very low base rate and a reasonable bonus interest rate that is conditional on making a monthly deposit. ANZ, Bankwest and Suncorp have minimum deposits of $10, $25 and $20 respectively.            

A second condition is that no withdrawals can be made within the month. If money is withdrawn, the accounts usually only pay an interest rate of about one per cent or less for that month. The exception is Suncorp’s Kids Saving Account, which allows one withdrawal each month without penalty.

However, the tricky rules give kids an opportunity to turn the system to their advantage – a skill that can have lifelong benefits. Savvy kids can divide their savings between a higher-interest savings account requiring a regular monthly deposit and the discipline not to withdraw for longer-term goals and a transaction account for cash on demand. Many institutions offer fee-free kids’ versions of their normal transaction account. But the downside of transaction accounts is that they usually pay little or no interest.

Check for fees

Banks may penalise kids for dumping a pile of coins on the counter.

No account we looked at charges account-keeping fees, but other fees can apply. For example, St George Incentive Saver offers only one free withdrawal and then charges $2.50 if your child withdraws money at a branch and 60c for ATM withdrawals. Banks may also penalise kids for dumping a pile of coins on the counter. While most institutions exempt them from a flat or percentage-based coin-counting fee, some will take a cut.

Also, once your children reach the age limit of the account – starting from 12 years old – it might be automatically converted into another account. Make sure the account is fee-free and check the interest rate and conditions of the new account.

Bewildering Bankwest

The most generous interest rate on offer in the accounts we looked at is paid by Bankwest Kids’ Bonus Saver, with a 8% interest rate. However, it’s also the most complex account we found. There is a maximum opening deposit of $250, and each month your child must make a deposit of at least $25 but not more than $250. Any withdrawals void the interest for that month, and at the one-year anniversary of the account all but $1 is automatically transferred into the Bankwest Children’s Savings account. This account pays just one per cent interest for amounts of up to $5000, two per cent for amounts over $5000 and 4.5% for amounts over $10,000.

TIP: Make use of the Bankwest Kids’ Bonus Saver’s generous interest rate in the first year, but each anniversary transfer the money from the low-interest Children’s Savings account into an account with a better rate.


kids_accounts2

Since 1 July 2011, steep tax rates have applied to the interest income of children. In 2010-11 the low-income tax offset still applied to children, which resulted in a tax-free interest income of up to $3334. See the ATO announcement.

But since 2011-12, only $416 has been tax free. Depending on the interest rate, $416 interest could be paid on an account balance of between $7000 and $10,000.

Anything above $416 up to $1307 is taxed at 66%. If a child has interest income of more than $1307, the whole amount is taxed at 45%. No Medicare levy applies so long as the child’s income is below the low-income earner threshold ($18,488 in 2010-11). Once the income is above $416, the child also has to lodge a tax return.

Exemptions apply for children who work full-time and those with certain disabilities. The ATO also has strict rules about whether the income belongs to the child or the parent. If you transfer money into the account and use some of it to pay for child care or school fees, for example, the ATO considers the interest to be your income and so it must be declared on your tax return.

For the interest to apply to your child, the money must be genuinely gifted to them and you must not intend to use it – not even on their behalf. For more information check with the ATO.

 

Your say - Choice voice

Make a Comment

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