On the hunt for a kids’ bank account? Here’s where the best rates are

After our favourite money-saving app shut up shop in Australia, my young children and I have been crying out for a real, rather than virtual, savings option. And with rates up 2.75 per cent since May and savings accounts finally edging up too, it couldn’t be better timing.

Kids’ accounts always pay more than their adult equivalents, and this had held true amid this RBA hike cycle. While at the beginning of May, the highest you could earn on a kids’ account was 3 per cent with Australian Unity, data from comparison site Mozo shows the best rate of offer has now lifted to 5.35 per cent via the Bank of Melbourne’s Incentive Saver Account (Kids).

More commonly with both children’s accounts and adults’ account versions, there are hurdles you have to clear to get the total possible interest rate each month.Credit: Dominic Lorrimer

Note that Mozo’s list does not include introductory bonus rates or accounts that are specifically for teenagers.

A decent 4.25 per cent is also now available from Australian Mutual Bank’s Young Saver Account and a still-good 3.75 per cent from Great Southern Bank’s Youth eSaver.

What I particularly like about the last two savings products is that what you see is what you get. Those rates are contingent upon nothing: they are the base rates you get regardless of what happens.

More commonly with both children’s accounts and adults’ account versions, there are hurdles you have to clear to get the total possible interest rate each month. Most total rates are made up of a base rate and a bonus rate that is subject to bonus-rate conditions.

These are usually minimum deposit amounts and, maybe, no withdrawals in any given month.

If you struggle to clear said hurdles, it is best to instead opt for an account for your kids or yourself with the highest base rate. However, if you could meet the qualifying conditions, there is more money available – as high as 5.35 per cent for a kids’ account from the Bank of Melbourne, as mentioned.

And, for this, the bonus bar is not set overly high. Your child needs only grow their account balance each month.

For Australian Unity’s account (a possible 4.5 per cent), they need to make a deposit of at least $5 and no withdrawals within that month.

Now, interest for adult accounts is on the up, but nowhere near what your child could make. The best you can do now is 4.3 per cent with ING Savings Maximiser. It is another bonus-style account whereby you need to deposit $1000, make five eligible purchases and grow your savings balance every month.

This product is only available on balances up to $100,000 and needs to be linked to an ING Orange Everyday Account. The base rate is only 0.55 per cent.

Still, research by Finder shows that a 4.3 per cent rate would make a significant difference on the average account balance, versus with the average rate in the market.

The average Aussie has savings of $35,316, and many institutions have been dragging their heels on upping interest for savers, so the average rate is only 2.55 per cent.

An average Aussie therefore stands to make an extra $638 a year – or $3657 over five years – from switching to a market-leading product.

But getting back to kids’ accounts, bear in mind that the high interest often cuts out once a balance hits $5000. This is why the rates can be so much more generous.

And it is possible that more than interest, education for your children on how to appreciate and manage money is your end game. This is where apps like the hugely popular Spriggy, which issues a Visa debit card and accommodates pocket money and earnings, come into their own.

But bear in mind with Spriggy there is no interest paid, and the importance of interest is an important life lesson. Instead, there is an annual fee of $60 for a family of up to four children.

Check out any interest-paying bank’s kid-tastic additional features, like goal targeting and savings features, as part of your parenting decision. Because giving your kids an understanding of money – and its value and scarcity – will be priceless.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow Nicole on Facebook, Twitter or Instagram.

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