Children’s savings accounts have tricks and traps in the fine print

Parents are being urged to check their children’s bank accounts as low rates and tricky conditions could be costing them cash.

Australian children have suffered financially in recent years from ultra-low interest rates on their cash in the bank – just like retirees and other adults – but they also face extra challenges when saving.

Children’s savings accounts are a good way to teach them about money, banking specialists say, but traps and tricks can be buried in the fine print.

RateCity.com.au says there are more than 50 banks with tailored savings accounts for children, and has tested the sector to find that high interest rates don’t always deliver the best long-term returns.

This is because of barriers including caps on overall balances, penalties for withdrawing money, minimum monthly deposit rules and different age limits – some as young as 12.

“A lot of kids’ savers offer bonus interest, but only if you meet the bank’s strict terms and conditions, and one of the most common is no withdrawals,” RateCity research director Sally Tindall says.

RateCity’s Sally Tindall says kids’ savings accounts can have strict terms and conditions.

“This means if you take money out, you may find you earn significantly less interest on your entire balance for the month,” she says.

RateCity’s analysis found the average maximum rate today was 0.87 per cent, but rates ranged from 0.1 per cent to 3.5 per cent – the highest rate was for savings below $1000 and children could only get the account, from Laboratories Credit Union, from age 8.

It found that Australian Unity’s Kids Saver account had the third-highest interest rate but earned the most interest over the long term – from age 1 to 13 – after terms and conditions were taken into account.

“When selecting a kids’ account, read the fine print carefully and make sure you can meet the conditions before signing up,” Tindall says.

“It’s also worth regularly checking to see if your rate is still competitive. It’s a great way to teach your child how important it is to stay on top of finances.”

People’s Choice Credit Union spokesman Stuart Symons says savings accounts for children introduce them to how banks work. He says parents should be very aware of fees.

“Young people have less money to save, so fees will take a bigger bite,” Symons says.

“Our Young Saver account has no monthly fees, no minimum deposit, and provides bonus interest if you keep paying in and not withdrawing,” he says.

“Encourage your child to make regular deposits, even if they are small, because that’s a great habit we should all have.

“And set a savings goal so there’s something specific and exciting to aim for.”

Originally published as Children’s savings accounts have tricks and traps in the fine print