Choosing the best kids savings account – features to consider
Competitive interest rate
These days, most banks offer a savings account specifically for kids. But not all banks offer a decent rate of interest. Money.com.au’s savings database spans more than 40 kids accounts and rates on those range from 5.75% all the way down to 0.02%. In short, a good return on your child’s savings is not guaranteed. You’ll need to shop for the best rates.
Simple conditions to achieve maximum rate
Many high interest savings accounts come with bonus interest conditions, and kids savings accounts are no different. These could include a minimum monthly deposit, no withdrawals, or both. Choose an account with easy (or no) bonus interest requirements, as missing out will mean you earn little or no interest.
Age requirements
Naturally for kids' savings accounts, age is a key eligibility factor. The minimum age will depend on the provider and account, with some being open to newborns, while others are aimed at teenagers. Also consider the age cap of the account. When the child reaches that age, they may lose the competitive interest rate and be left with what is effectively an everyday transaction account.
Generous balance cap
The maximum balance available on a kids savings account varies a lot. A cut-off of $5,000 is fairly common among the accounts on our database, while some options set the max at $50,000 or higher. Depending on your savings goals and intended use for the money, the limit can be a key factor, as any funds deposited above that amount will likely earn less interest, or potentially none at all.
No monthly fees
Most savings accounts for kids don’t have any ongoing fees. If you’re considering accounts that do charge regular fees, you need to be really clear on what you’re getting in return. The same goes for transaction fees. Ideally look for an account that doesn’t charge you to move money in or out.
Learning and saving tools
Some banks offer resources for parents and kids to make saving easy and fun. This can include settings for pocket money payments, a mobile app, parental controls, and the ability to create savings goals which kids can track. Most banks also offer learning resources, like videos, games and blogs.
Why open a kids savings account?
A kids savings account is a high-interest savings account geared towards children and teenagers. There are a few reasons why a parent or guardian may want to open a kids savings account, including:
- To teach kids the value of money
- Build savings for their future (e.g for their first car or even a home deposit)
- Encourage kids to create savings goals and make good use of their pocket money
- Take advantage of the competitive interest rates available
According to Money.com.au research, most Australians (51%) believe parents should start teaching their kids basic money concepts, like savings, budgeting and spending before the age of 10. About a quarter of those we surveyed said ten to thirteen years old is an appropriate age. The remainder believe this kind of learning should begin when kids are older.
Whatever age this journey starts for kids, a savings account can be a useful tool by offering a secure and convenient place to keep cash.
The ‘magic’ of compounding
Unlike a piggy bank, a savings account will grow the account’s total through compound interest. Basically that means if you earn interest on your savings, the next month you’ll earn more interest on the interest you’ve already earned. That, plus making regular deposits over time, can add up to a considerable total for your kids’ future.
Here’s an example: 6-year-old Max’s parents open him a savings account with an interest rate of 5.25%. They put an initial deposit of $100 in, that he had received from his grandparents as a birthday present. Each week, his parents pay him $10 of pocket money into the account.
In ten years’ time, when Max is 16 years old, he has a total balance of approximately $7,003 in his account, around $1,703 of which was earned from interest.
How I use a savings account for my two daughters
Sean Callery, Editor
When our eldest daughter was born, we opened up a kids savings account with our existing bank using the money we got as gifts from family. The account still has one of the better rates available and it’s convenient having it with the same bank. Five years on, there's a little sister as a joint account holder and the girls get $50 ‘pocket money’ between them each month, plus gifts at birthdays and Christmas.
We’ve recently surpassed the maximum balance for the top interest rate. It’s time for a change to an account with a higher cap. We’ll need to switch the kids account away from our 'main bank', but given how easy it is to move money between banks, that’s not a concern. We figure we’re better off having the best product for our various needs, even if it means juggling multiple banks.
Sean Callery, Editor
Banks that offer interactive finance resources for kids
BankVic
Here’s a selection of some of the kids saving resources and initiatives being offered by banks across Australia. These are essentially marketing initiatives by the banks to appeal to parents and get young customers signed up.
A level of skepticism is perhaps useful when assessing these types of services, but they can have some value if the kids account is of a high quality overall.
Annual Education Grant Award and Savings Achievement Awards Each year BankVic rewards kids under 18 in their Little Copper Club with the chance to win a $1,000 education grant if they have at least $250 in their account. There’s also the chance to win the Savings Award for eligible members with at least $100 in their account. This prize value is based on a tiered system that corresponds to the amount of money in the savings account.
BankWAW
Transaction record book Kids can keep track of their money and watch as their savings grow by recording progress in their own record book.
Buck’s Star Saver Club Kids aged up to 12 years old can join BankWAW’s Star Saver Club which comes with an exclusive welcome gift.
Bendigo Bank
Free money box Kids can get a free money box when their PiggySaver account is opened at a Bendigo Bank branch.
Birthday gift Kids on a Piggysaver account aged between 4-10 years old will receive a birthday gift when they visit a branch.
Cairns Bank
Passbook Kids can keep track of their savings with a tangible record in Cairns’ Bank passbook.
Coastline Bank
Annual birthday gift card Kids up to 12 years old with a Coastline Bank Cubs Account will receive an annual birthday gift card.
Cubs School Visit Program Coastline Bank offers primary school classes the opportunity to learn practical money skills through a visit to one of its branches in Macleay, Hastings, and Manning Valleys. The kids get to do engaging activities, a guided tour, and could receive a goodie bag, a $5 note each, and a certificate.
Cub and Kickstart of the Week Awards Local kids sporting clubs can apply for sponsorship with Coastline Bank to recognise their members aged under 18 with a $10 gift card and an award certificate.
Commbank
Kit Pocket money app that lets kids complete Money Quests, tick off jobs, set and reach saving goals and track spending. It comes with a prepaid card with set limits and merchant blocks. Available to kids aged five years old and up. Kit is free for Commbank Yello customers. It can also be linked to their Youthsaver account so kids can monitor their account’s total.
The Beanstalk Helps parents to teach kids about money through a range of guidance articles and videos.
Gateway Bank
Dollaroo Den Gateway Bank offers kids on their Dollaroo savings accounts access to themed finance worksheets and rewards charts that feature unique characters like Dollaroo the kangaroo, Charlie and Owly.
IMB Bank
Zoo Club extras IMB Bank offers kids aged 12 and under access to competitions, activities and rewards to keep them engaged with growing their savings. Upon signing up the child will receive an exclusive IMB Zoo gift.
$100 monthly prize draw Zoo account holders located in New South Wales, Australian Capital Territory or Victoria have the chance to win $100 each month. The account holder earns one entry automatically for every deposit of $10 or more into an IMB Zoo account in the child’s name.
Westpac
Pocket money payments Set up pocket money payments and link them to a chores list in the Westpac app.
Is the interest from a kids savings account taxed?
Yes, interest earned on a kids savings account is generally considered taxable income according to the ATO. However, the tax treatment depends on who owns the money in the account and who is entitled to the interest earned.
You don't necessarily need to provide a Tax File Number (TFN) when opening a child's savings account. For children under 16, banks can generally accept the child's date of birth instead of a TFN. However, if the required tax information isn't provided, the bank may be required to withhold tax from any interest earned.
Determining whose TFN (if one is required) should be linked to a kids savings account depends on who is considered the beneficial owner of the money and therefore entitled to the interest.
Parent
For example, a parent opens an account for their young child, deposits $5,000 of their own money and regularly makes payments and withdrawals from the account to cover preschool expenses. In this case, the money and interest effectively belong to the parent, so the interest would generally be treated as the parent's taxable income.
Child
By contrast, if a child has a savings account in their name and the money in the account comes entirely from birthday and Christmas gifts received from relatives, the interest earned generally belongs to the child. In this situation, the bank will typically require the child's date of birth or TFN for tax purposes.
It's also important to note that special tax rules apply to children's unearned income, including interest earned on savings accounts. While small amounts of interest may not result in any tax being payable, higher amounts can be taxed at significantly higher rates than those that apply to adults.
For more information about how a child’s age influences tax on a kids savings account, check out the Australian Taxation Office’s website.
Pros and cons of a kids savings account
Pros
- The most competitive kids savings accounts offer interest rates that are up there with the rates on offer for adults
- Kids can learn about good saving habits and the benefits of compounding, while putting them into practice towards a future goal
- Kids savings accounts are secure, inexpensive and the funds are generally easy to access
- Less risky than other forms of investing parents may consider for their children
Cons
- Age limits vary and as your child gets older they may become ineligible for the benefits on some accounts
- There are possible tax implications
- There’s usually a balance cap on kids savings accounts that once reached, could reduce the amount of interest being accumulated
- Potentially lower returns versus investing for your child via shares, super or other investment.
How to apply for a kids savings account
Check the eligibility requirements
Before applying, make sure your child fits the age requirements and other eligibility criteria for the savings account, as they will vary from bank to bank. It’s also worth checking if the account’s maximum balance and bonus interest conditions match the savings goals that you have in mind.
Apply online or in branch
Whether you can apply online or have to go into a branch will depend on the bank. While the process for opening a savings account is pretty straightforward, in some cases the provider may require the initial sign up to happen in-person.
Provide documentation
The bank will need a parent or legal guardian to provide the child’s identification with either a birth certificate, Medicare card or passport usually being acceptable. You may also need to prove the relationship between child and parent/guardian, which can generally also be done through a Medicare card or birth certificate.
Create a savings plan and set up tools
With the savings account opened, it’s time to come up with a plan for regular deposits and encourage your child to learn to save. If there are any parental controls you’d like to add or set up a kids’ pocket money schedule, it’s a good idea to do it now while it’s still fresh in your mind.
