Help your child build their money management skills with a kids’ bank account.
Opening a kids’ bank account is the perfect way to start your child’s journey to financial success, helping them learn about the importance of a dollar and how to earn interest on their savings.
However, it can also be a little confusing to understand whose name the account should be in, who can access the funds in the account, and what happens when your child turns 18. Before you take your son or daughter to your local bank branch to sign up for an account, make sure you know the ins and outs of managing a children’s bank account.
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Is the account under my name or theirs?
The name the account is under will vary depending on the age of your child:
- If the child is under 12, you will either need to be an authorised signatory for the account or open the account in trust for your child. For example, you might want to open a savings account for your newborn.
- If the child is 12 years or older, the account can be opened in their own name or as a joint account with a parent or guardian.
If I open a bank account for my child, can I use the account?
You can make deposits into your child’s bank account if you wish, but you need to be aware that there are tax implications for doing so. The ATO has very strict laws governing kids’ bank accounts to stop parents hiding their income in a kids’ savings account that pays a high rate of interest. Any income you contribute to your child’s account must be declared on your income tax return.
In addition, whether you or your child is required to declare the interest earned at tax time is dependent not only on who provides the money for the account, but also on who decides how the money is spent. Even if the money is spent on the child, for example to send them to a summer camp, the parent may still have to declare the interest earned on their tax return.
Of course, if you’re the authorised signatory for the account, or it’s a joint account, or has been opened in trust for your child, you will be able to access the funds whenever you wish.
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When can my child start accessing the funds in the account?
This depends on the age of your child and the type of account you open. For example, if you’re an authorised signatory on the account, your child won’t be able to withdraw any money without first getting your approval. If the account is being held in trust, your child won’t have access to the funds until they turn 18.
However, if the child is 12 years of age or older and the account is opened in their name, they can start making withdrawals whenever they wish. With this in mind, it may be worth considering how your child handles responsibility, and their money management skills, before deciding which type of account to open and the access conditions that apply.
What happens once my child turns 18?
When your child reaches their 18th birthday, their kids’ bank account will usually automatically convert to a different type of account with the same bank. This could be a savings account or a transaction account, and it will have its own unique terms and conditions.
Some kids’ bank accounts have different cut-off ages, such as 15 or 16 years of age, at which point they will revert to a different product. Read the account terms and conditions closely to make sure you’re aware of what happens when your child reaches the cut-off age. If the funds are automatically rolled over into a new account, is that new account suitable? For example, does it charge a monthly service fee where the previous account didn’t?
Finally, remember that depending on the type of kids’ bank account you open, there may also be other special conditions that must be met.
For example, if the account offers bonus interest, you may need to deposit a minimum amount each month and not make any withdrawals; failure to meet these conditions could mean that you don’t earn bonus interest for that particular month. The Bankwest Kids Bonus Saver pays interest at 4.75% p.a. when your child deposits between $25 and $250 each month and does not make any withdrawals. If these conditions aren’t met, the standard variable rate of 0.01% p.a. applies for that month.
In other cases, your child’s savings account may automatically convert into a different type of account once the balance reaches a certain level, or you may need to open a linked transaction account.
Again, make sure you are familiar with all the terms and conditions associated with your kids’ bank account to make sure you’re aware of any restrictions that may apply. You can also compare kids’ bank accounts at finder.com.au to see how each individual account stacks up against the competition.