Kids' bank accounts

Changes to tax rules mean little savers can be hit with a big tax bill.
 
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02.Comparison of kid's bank accounts

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 If money is withdrawn, the accounts usually only pay an interest rate of about one per cent or less for that month.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.

 

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