What happens if your child saves $20 a month?
Australian kids could be missing out on $70 million in interest a year.
It should be a parenting 101 lesson: teaching your children how to save. Many parents are vaguely aware of the beauty of compound interest and some will encourage their children to take part in school banking programs, but there's still a lot of room for growth.
Gateway Credit Union issued a press release last week, noting that if all 4.4 million Australian kids under the age of 15 put $20 a month into a savings account with an opening deposit of $1,000 and an interest rate of 1.5%, that would amount to over $70 million in collective interest.
If anything, that's a lowball figure. A quick check of current kids' bank accounts shows that kids can earn up to 4.75% per annum right now - that's the rate on the Bankwest Kids' Bonus Saver). That's a much higher rate than most savings accounts available for adults. To qualify for that rate, you need to deposit $25 a month. If you do that with a starting balance of $1,000 over a year, you'll earn $55.17 in interest in the course of the year.
The space remains competitive in other ways. Earlier this year, Westpac announced an ambitious plan to offer $200 in an account to every child born in 2017. The Bump Savings Account officially launches on 8 April. The one catch? You can't withdraw that $200 until you turn 16.
As that example suggests, banks are willing to offer competitive rates to kids in large part because they want to sign up customers early. If you've already got your savings with a bank as a child or teenager, chances are good you'll stick with them. But if you're a smart consumer, you'll switch when there's a better deal to be had.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.