High interest savings accounts for kids and children

author-avatar By on February 26, 2021
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High interest savings accounts for kids and children

Forget the classic piggy bank - give your children the best possible financial start with a high interest savings account.

Getting your first bank account is an important financial milestone and it’s also an opportunity to introduce your children to financial habits, like saving, from an early age.

A kids high interest savings account encourages your child to save a certain amount every month and may even reward them with bonus interest if certain conditions are met, such as not making any withdrawals.

Highest interest savings accounts for kids and children


The table below displays some of the highest interest rate savings accounts for children.


We’ve calculated how much interest could be earned with the above savings accounts if you were to make an initial deposit of $100 and monthly deposits of $50. (Please note that for some of these savings accounts, terms and conditions may apply in order to earn the maximum interest rate).

Product name

Maximum interest rate

Interest earned over 12 months

LCU Young & Free Student Account

3.50%

$13

BOQ Fast Track Starter Account

3.00%

$11

CUA Youth eSaver

2.50%

$9

Queensland Country Bank Star Saver

1.80%

$7

Gateway Bank Kids Dollaroo Savings

1.50%

$6

How does a savings account work for my child?

Children’s savings accounts usually have much higher interest rates than adult savings accounts to encourage kids to build up their savings when they’re young. These higher interest rates usually revert to a standard interest rate once the child turns 18.

Children's savings accounts may have strict conditions that need to be met, such as depositing a certain amount each month and not making any withdrawals to earn the bonus interest rate.

To be eligible for a children’s savings account, age restrictions generally apply. Applicants usually need to be under the age of 18 to qualify.

What are the benefits of opening a savings account for my child?

Opening up savings account for your child has many benefits which include:

  • Earning interest: By storing your child’s money in a high interest savings account, rather than the humble piggy bank, your child can actually earn interest on their money. Depending on the savings account you choose and the amount you regularly deposit, your child could earn hundreds of dollars in interest every year, growing their savings balance faster than it would if it’s sitting in a piggy bank not earning any interest at all.

  • Their money is secure: If you store your child’s money in a piggy bank at home, there’s always the risk that their money could get stolen by an intruder (or their sticky fingered sibling!). By storing their money in a bank account, you have the peace of mind knowing their money (up to $250,000 under the Australian bank deposit guarantee scheme) will be safe.

  • Financial literacy: Bank accounts can be an excellent teaching tool for children to learn good financial habits such as building up their savings. A savings account with a high interest rate can also teach your child about the economy and how real world events (such as cash rate changes by the Reserve Bank) can impact their savings if their savings account interest rate goes up or down.

  • Reach savings goals: If your child has a savings goal like a new bike or a Barbie dream house, they can watch their savings grow. A high interest rate savings account can help your child reach their savings goal quicker as their money will be earning interest every month. Over a year, your child could potentially have earned hundreds of dollars just in interest to put towards their savings goals.

See also: How to encourage your kids to start saving money

What should you look for in a children’s savings account?

A competitive interest rate

Children’s savings accounts generally have much higher interest rates than the interest rates on adults savings accounts, so you should look for the highest rate you can find. Keep in mind that you may have to meet certain conditions to earn the maximum interest rate each month, such as depositing a certain amount and not making any withdrawals. Balance caps may also apply, meaning the top interest rate can only be earned on balances up to a certain amount.

Minimal fees

Children’s bank accounts usually don’t have many high ongoing fees but you should still look out for any monthly account keeping fees, withdrawal fees, overdraw fees, transaction fees, ATM access fees and so on.

Low minimum opening deposit

Children’s bank accounts generally shouldn’t have a high minimum opening balance due to the fact that the account belongs to a child - and most children aren’t swimming in money.

According to Savings.com.au research, a minority of children’s savings accounts have a minimum opening deposit of between $1-$5 while the vast majority have no minimum opening deposit.

High maximum amount

Another thing to keep an eye out for when comparing children’s savings accounts is the maximum amount of money that can be kept in the account. For example, some children’s savings accounts have a maximum amount of $5,000, while other children’s savings accounts have maximum amounts of $20,000 to $50,000 and $99,9999.

Depending on how much money your child wants to save, it may be better to look for a savings account with a higher maximum amount.

Educational resources

Some banks provide free resources to teach children good money habits (like Commonwealth Bank Dollarmites program), such as how to budget and save through online activities, videos, games and banking apps. These resources can make learning about money fun for children and give them the tools to make smart financial decisions as they grow up.

See also: Should financial literacy be taught in schools?

What are the advantages and disadvantages of a children’s savings account?

Advantages

Disadvantages

Children’s savings accounts generally earn more interest than adults savings accounts. Depending on the account, you may have to meet certain criteria such as not making any withdrawals to earn the bonus interest rate.

Children’s savings accounts have age limits. The age limit differs from bank to bank, and can start from the age of 12 (but most have an age limit of 18). When your child reaches this age, they will no longer be eligible for the account and the account will be automatically converted to a regular savings account.

Children’s savings accounts generally don’t have many ongoing fees.

There are tax implications. If your child is under the age of 16 and earns between $120 and $420 in interest from their savings account and they don’t provide either their tax file number or date of birth, the bank will withhold pay as you go (PAYG) tax at 47% and the child will need to lodge a tax return if they want a refund - obviously this is something a parent will need to do for the child.

You can teach your child how to save money and budget from an early age, especially if your bank provides free educational resources.

Some childrens savings accounts have balance caps, meaning the top interest rate can only be earned on balances up to a certain amount. For example, the LCU Young & Free Student Account only pays the maximum 3.50% interest rate on balances up to $1,000 while the CUA Youth Saver account only pays the maximum 2.50% interest rate on balances up to $5,000.

If you’re so inclined, you can even open up a bank account for your baby to start saving money as early as possible and take advantage of that compounding interest.

Are there any traps to look out for?

Tax implications

If your child’s savings account is earning interest, the Australian Taxation Office (ATO) has strict guidelines.

If the parent provides the money for their child’s savings account and uses it as they wish (such as spending the money on piano lessons for their kid), any interest earned is considered to belong to the parent and the parent must declare that interest in their tax return.

But if the child is depositing their own money into the account, such as pocket money, Christmas/birthday money, or money they’ve earned from casual jobs, and the money isn’t spent by anyone else other than the child, any interest earned is considered to belong to the child. If the child earns less than $120 in interest for the financial year, no tax will be withheld and they won’t have to file a tax return.

However, if the child is under the age of 16 and earns more than $420 in interest for the financial year, they will have to provide their Tax File Number (TFN) to avoid being taxed on that amount. If the child doesn’t provide their TFN, the financial institution will withhold pay as you go (PAYG) tax at 47% and the child will need to lodge a tax return if they want a refund.

The high interest rate is tempting, but it’s not for you mum/dad!

It may be tempting to put your savings in your child’s savings account to take advantage of the high interest rate that you can’t get on your own account, but don’t. The ATO has very strict tax guidelines in place to govern the funds being held in your kids account to prevent parents from sneakily hiding their own savings in there.

Always read the Ts and Cs

Before taking out any financial product, you should always read the Terms and Conditions. That interest rate may look really high, but are there any conditions that need to be met in order to earn the maximum interest rate? Do balance caps apply? You should also check what the interest rate reverts to once your child turns 18. What looks like a really competitive rate right now may not be so great later on.

Savings.com.au’s two cents

If you want to give your child a good financial start, opening a high interest savings account for them is the first step towards teaching them how to be financially literate.

The key takeaway here is to look for a savings account with the highest interest rate you can find, but you should also remember that there may be certain conditions that need to be met each month in order to earn the maximum interest rate.

By opening up a high interest savings account for your child and making regular deposits, you’re giving them a great financial start thanks to the power of compounding interest. Not only are you giving them a good financial head start in life, you’ll also be teaching them valuable money lessons and giving them the tools to become financially literate adults.


Photo by Annie Spratt on Unsplash

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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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