The rising cost of living means it’s more important than ever to choose the right bank account to earn interest on your savings – and that applies to your children, too.
RateCity’s research director, Sally Tindall, says setting up a savings account for your child not only helps secure their financial future, but also teaches them how to manage their money.
But finding the best account is no easy feat – banks impose conditions that can sometimes outweigh the benefits of a higher interest rate.
Here are four tips for finding the best bank for you.
1. Read the fine print
RateCity tested children’s savings accounts by calculating how much interest you’d earn if you opened an account on your child’s first birthday and deposited $20 a week until the day before their 13th birthday.
The results showed that accounts with higher interest rates did not necessarily result in higher returns, once various terms and conditions were taken into account.
These can include deposit and withdrawal requirements, rate caps, age limits, and how often interest will be paid.
Ms Tindall said parents should familiarize themselves with these terms, rather than automatically opting for the highest advertised interest rate.
“You can find all sorts of traps buried deep in the fine print that can catch not just children, but adults trying to help them navigate,” Ms Tindall said.
“In fact, sitting down and reading the terms and conditions with your child is a great activity to teach them the importance of fine print.”
2. Plan your savings
Some banks require you to make regular deposits of a certain amount and impose a limit on the number of times you can withdraw money.
For example, the People’s Choice Young Saver Account requires you to make deposits of at least $5 per month with no withdrawals to receive the maximum interest rate.
“There is no point in choosing a savings account that offers a maximum rate, but only if you make regular deposits, when you only plan to deposit money at Christmas,” Ms Tindall said.
3. Pay attention to price caps
You may want to save as much money as possible for your child, but if you choose the wrong savings account, you may be saving too much.
Although many savings accounts allow you to save as much as you want without affecting the interest rate paid, some have caps on the amount of money you can have in the account to receive the maximum rate.
For example, Australian Unity’s Kids Saver account offers an interest rate of 2%, but once the balance reaches $20,000, it drops to 1%.
4. Find better deals
Finally, Ms Tindall said parents shouldn’t take a fixed, forgotten approach to savings accounts.
She said parents should involve their children in comparing products regularly (every six months) to see if better options have come to market, noting that it would be a “fantastic lesson” to shop around for when your child eventually needs to. find their own bank. Account.
This practice will become especially important once the Reserve Bank of Australia begins to increase the exchange rate.
Although the RBA’s rate hike is squeezing the budgets of homebuyers and mortgage holders, Ms Tindall said it was good news for savers who could expect higher interest rates on their savings.
“With a bit of luck [savers] will see savings rates take off, but it’s really important to be vigilant about what your bank is passing on because I can’t imagine all banks will pass on these cash rate hikes equally and equally,” said Mrs Tindal.
“It’s really important when these interest rate hikes happen that you stay on your toes and review your account to make sure you’re still getting a decent interest rate.”
