Give your children the best possible start to saving with a kids savings accounts.
It is never too early to teach a child the benefits of savings. A kids high interest savings account (HISA) offers many features that make them ideal for young Australians to start saving their dollars for the future. It encourages your child to save a certain amount per month, awarding bonus interest if no withdrawals are made.
Compare children's savings accounts in the table below
There are usually no monthly account fees charged and 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.
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 is earned over 12 months with an initial deposit of $5000 and monthly deposits of $1000. Note: terms and conditions may apply.
|Product name||Maximum interest rate||Interest earned over 12 months*|
|bcu Scoot's Super Saver||3.50%||$372.22|
|Bankwest Kids Bonus Saver||4.75%||$308.92|
|Suncorp Bank Kids Savings Account||2.75%||$291.66|
|Commonwealth Bank Youthsaver||2.30%||$243.53|
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. It may have more withdrawal restrictions depending on the type of account. For example, if you opt for a kids 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 its 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 Tax Office (ATO) any income that you put into your kid's saving 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 for 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 that can be later transferred to the child. 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.
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 are holding money which 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.
How do I compare children and grandchildren savings accounts?
A competitive interest rate
For older kids who are earning a small income, a bonus saver account for kids will help them to learn the benefit 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
Teach your kids the habit of saving 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.
This is a banking program that is run through participating primary schools nationally. 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 engage 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%).
No monthly fees
There is likely not going to be any account keeping fees for a kids HISA, but you should look for other fees such as 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 this is meant to be funds that belong exclusively to the child account holder.
Why it's important to compare children's savings accounts
Paul has two children age 7 and 13. They 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 in addition, his children also put regular deposit of their own pocket money and never withdraw. However, they don’t seem to see much interest saved. 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'd look at. An analysis of the YouthSaver account shows that the bonus interest rate is 2.30% p.a. If Paul was to conduct a comparison of kids savings account using the table above, he would find that there are 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 about teaching your kids to put their money away, it is also teaching them different spending needs and savings goals. It's alright 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. To prepare your kids to manage their lives and their finances when they grow up, teach them about interest rates, inflation, the Australian economy and the impact of world events by using a high interest savings account.
- 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 easily set up arrangements to make 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 be awarded with 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, the account will convert automatically when the child turns of age in order to give them more access to their own savings. If not, 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 will not have to worry about their child losing money with a savings account as these are protected by the Australian Government guarantee for deposits of $250,000 or less. They should however 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 there, even if it is intended towards the purchase of 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 Tax Office (ATO) has very strict rules governing the funds that are being held in a child’s savings account.
- Withdrawals are very 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 an HISA for kids with limited access.
- Any harsh 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.