Give your children the best possible start to saving with a kids' savings account.
It’s never too early to teach a child the benefits of savings. A kid’s high interest savings account (HISA) offers a number of features that make them ideal for young Australians wanting to save their money. It encourages your child to save a certain amount per month and awards bonus interest if no withdrawals are made.
Compare children's savings accounts in the table below
Usually, there are no monthly account fees charged, but there is a maximum age limit. When your child turns that age, the account will automatically switch to a default savings account offered by the bank. There's also no minimum age requirement on most children's bank accounts, meaning they can generally be opened when your child is any age. Usually banks impose an age restriction on children being able to open an account themselves, so unless your child is 13 or 14, you will need to open the account on their behalf.
finder.com.au featured children's savings accounts
Compare the potential interest earned with the following savings accounts. Below, we take a look at how much interest an account earns over 12 months with an initial deposit of $5000 and monthly deposits of $1000. Terms and conditions may apply.
| Product name | Maximum interest rate | Interest earned over 12 months |
|---|---|---|
| bcu Scoot's Super Saver | 3.50% p.a. | $372.22 |
| Suncorp Bank Kids Savings Account | 2.60% p.a. | $291.66 |
| Commonwealth Bank Youthsaver | 2.30% p.a. | $243.53 |
| Bendigo Account PiggySaver Account | 1.25% p.a. | $131.85 |
How does a savings account work for my child / grandchild?
A kid's savings account usually has a higher interest rate than adult savings accounts, but it may have more withdrawal restrictions depending on the type of account. For example, if you opt for a kid’s bonus saver, you earn more interest if you make deposits and no withdrawals. Age restrictions also apply. To be eligible, you usually need to be under the age of 16.
Children's savings accounts and their tax implications
Q: Can I deposit funds into my child's bank account and take advantage of the tax-free threshold?
A: No, according to the Australian Taxation Office (ATO), any income that you put into your kid's savings account needs to be declared in your individual tax return. This means that you'll be looking at the same marginal tax rate anyway. Speak to your financial planner today about effective tax strategies to protect your wealth.
Q: For children under the age of 12, do I need to open the account as a trust?
A: You're not required to open the account as a trustee. You can add yourself as a signatory and then transfer it to the child later. If you are starting a trust for your child for estate planning purposes, you may want to speak to a financial planner about what trust structure is best for you.
A testamentary trust is designed to provide a flexible and tax-effective distribution of capital and income to beneficiaries. When planning your estate, you may want to consider this type of trust with your child's inheritance in mind.
Q. For children under the age of 16, does the child need a TFN?
It is not required, though ensure the account is marked “Under 16 - TFN Exempt”.
In Australia, the law requires that these accounts hold money that solely belongs to a minor child. A parent may not use this type of account to save for school costs or other expenses related to raising children. A parent should consider an HISA in their own name if they have savings goals in mind for their children’s future.
The ATO will allow tax exemptions for a child under 18 who holds a full time job and for those with certain physical or mental disabilities.
Q. Can I open an account for someone else's child?
Most banks require you to be the child's parent or legal guardian in order to open an account for them. You will also need the child's birth certificate and a form of identification for yourself in order to open a bank account for the child.
How do I compare savings accounts for my children and grandchildren?
A competitive interest rate
For older kids who are earning a small income, a kid’s bonus saver account will help them learn the benefits of developing good saving habits. These offer a higher interest rate for regular deposits and no withdrawals, taking into account that kids may not be able to commit to the same deposit amount as an adult would.
Ability to make deposits
Teaching your kids to save regularly is a great financial skill. Check if your child has a school banking program in place. If not, you can always open an account for your child and take him or her to the bank once a month to get them to physically deposit their pocket money.
No monthly fees
There may not be any account keeping fees for a kid’s HISA, but you should pay attention to monthly free withdrawal limits.
Low minimum opening balance
A child’s high interest savings account should not have a requirement for a minimum account balance as these funds belong exclusively to the child account holder.
Children's banking programs in Australia
In Australia, some banks have programs that give children access to online educational portals and some even provide rewards such as a $5 starter deposit and stationery to help children learn about savings and finances.
To find out how these programs can help your children learn about savings, take a look at our list of children's banking programs that are available in Australia.
The CommBank School Banking Program
This is a national banking program that is run through participating primary schools. Children can deposit money into their CommBank Youthsaver account through school banking. When they join the program, they receive a Dollarmites deposit wallet, a money box and materials to educate them about money.
It's also a fundraising activity for schools, with CommBank giving 5% of every individual deposit made at school (up to 10%).
Why it's important to compare children's savings accounts
Paul has two children, aged 7 and 13. They each currently have a Youthsaver account with Commonwealth Bank and have had it for the last five years. Paul arranges a direct deposit from his wage every month to their savings account and his children also regularly deposit their own pocket money and never withdraw. However, they don’t seem to be saving much interest. Is there a better solution for Paul and his children?
Since Paul is only concerned about the interest rate, this is the main feature we'll look at. An analysis of the Youthsaver account shows that the bonus interest rate is 2.30% p.a. If Paul were to conduct a comparison of kids savings account using the table above, he would find that there are a few accounts offering a higher interest rate.
What are the benefits of opening a savings account for my kids?
- Your kids can learn how to budget. Learning to budget is not just teaching your kids to put their money away, it is also teaching them about spending needs and savings goals. It's all right to spend some of your money, as long as some of it is put away in a dedicated savings account.
- Prepare your children to learn more about the economy. A high interest savings account will teach your kids about interest rates, inflation, the Australian economy and the impact of world events.
- Your kids can learn how a linked account works. High interest savings accounts are normally linked to transaction accounts and often have lower age limits. With a high interest savings account for your child linked to your own transaction account, you can set up regular transfers out of your account into your child’s. They'll be able to learn how savings account work in the real world.
What are the good points and bad points?
The good points
- You get more interest compared to savings accounts for adults. By making small deposits each month, a child’s savings account could earn a bonus rate on top of the standard interest rate.
- There are usually no fees and charges. Many banks will make it easy on kids to save by not subjecting them to extra fees or charges when accessing the account.
- You can even open one for your baby. You can open a savings account for your baby as soon as they receive their birth certificate to take advantage of compound interest.
The bad points
- The taxes could be quite high. There is no longer a tax offset for interest earned on a child’s account. If the account has earned at least $416 over the course of a tax year, they will be taxed on the earnings and will have to lodge their own tax return.
- There is an age limit. By the time your child turns at least 14, they may no longer be eligible for the account. Some banks will automatically convert the account when the child turns of age in order to give them more access to their own savings. If your bank doesn’t do this, you should consider allowing them to make the change themselves and find an HISA that rewards them for making monthly deposits.
Are there any traps to avoid?
Parents won’t have to worry about their child losing money with a savings account as deposits of $250,000 or less are guaranteed by the Australian government. However, they should consider other risks that may come from managing a child’s HISA account. For example, using your child's account to save for their music lessons depends on where the funds are coming from. If you want to save your own money in your child’s HISA account, even if it is intended to purchase something for your child, tax implications will apply.
- These accounts are designed for your child only. Parents must resist the urge to try and hide their own savings in a child’s HISA account. The Australian Taxation Office (ATO) has very strict rules governing the funds that are being held in a child’s savings account.
- Withdrawals are limited. As your child grows and is given more access to the account, they could fall into the habit of making frequent withdrawals from it. If you believe this may be an issue for your child, look for a kid’s HISA that limits access.
- Terms and conditions. Be sure to read the Product Disclosure Statement closely before you commit to a product. The interest rate may look good, but it's likely going to revert to an average rate after a period of time.
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