When big banks aren’t your best bet: Young savers punished with low rates
If you’re a parent, chances are financial literacy is pretty high on the list of things you want to teach your children. Learning how to save your money and spot a good deal are both pretty important milestones on the road to financial independence.
But if you’ve set up a savings account for your kids with one of the big banks, you might find they offer more in the way of colourful cartoon characters than actual value. If the goal is to motivate your kids to save, the paltry rates on offer aren’t much help.
But just how bad is it? New research from Mozo sheds some light on how much you stand to lose by keeping your child’s savings with a big four bank.
Big banks offer up to 1.70% less
We analysed 47 kids’ savings accounts from large and small banks, mutual banks and credit unions and found that young savers are missing out on a potential extra 1.70% in interest by sticking with the big banks.
Making matters even more frustrating, the conditions many of these accounts come with can be quite restrictive, with some not allowing withdrawals of any size in order to get the best interest rate.
“With the best kids savings rates on the market up around 4% it’s hard to see why parents would subject their kids to the poor interest rates and restrictive practices of the Big 4 banks,” said Mozo Director Kirsty Lamont.
“Not only do the big banks significantly restrict your child’s ability to access their money without being penalised, they are offering rates up to 1.70% lower than their smaller competitors, almost cutting the interest they can earn in half.”
What are the alternatives?
With so many challenger banks on the scene, Lamont said there were ample options available to parents and their children.
“Offering higher interest rates from 3-4% and less restrictive conditions on young savers, challenger banks are less likely to stunt your child’s financial growth,” said Lamont.
For parents looking for more high-value alternatives, the following banks are worth a look:
- CUA’s Youth eSaver offers kids aged 10-17 a flat 4.00% p.a. interest rate for balances less than $5,000.
- bcu's Scoot Super Saver offers kids aged 13 and under a 3.50% p.a. special interest rate as long as they deposit at least $20 and withdraw less than $5 each month.
- Endeavour Mutual Bank’s Young Saver offers kids under 17 a flat 3.50% p.a. interest rate.
- Greater Bank's Life Saver offers under 25s a 3.00% p.a. special interest rate as long as their balance increases each month.
- Newcastle Permanent's Smart Saver offers under 25s a 2.40% p.a. special interest when they deposit at least $10 a month and make no more than two withdrawals.
How to pick the best savings account for your child
So when it comes to picking out a savings account, there are a few things parents should make sure to do:
- Compare the kids savings accounts available, taking into account the interest rates and any conditions they come with.
- Be mindful of accounts with special rate requirements such as minimum deposits or penalties for withdrawals. You and your child will need to make sure you’ll be able to meet them each month.
- Look out for extras like savings apps and debit cards that can provide kids with more hands-on experience with finance and financial institutions.
If you’re ready to make the switch, be sure to check out our kids savings accounts comparison page for a look at what’s available.