Have your kids caught the banking habit yet? It’s never too early to begin teaching children financial literacy and for them to start saving money.
Back in the old days, thanks to piggy banks and school banking, children got in the habit of saving small regular amounts of money.
With the weekly trip to school with the bank book a thing of the past, parents have to work harder to instil a saving ethic and teach their children about saving money.
What to look when opening a kids bank account
The first step is to get the right children’s bank account with the best interest rate. Banks, building societies, credit unions and some other organisations all have children’s bank accounts. Here’s what to consider before opening an account:
- What is the interest rate on the account? They vary by as much as 1% and that can add up over time. If your child has built up significant savings it might be worth skipping kid’s accounts and going straight for a higher interest e-Saver account.
- Do you need a branch near you? Children benefit from branch banking. Sometimes it can be worth forfeiting the best interest rate at an online-only or out of town bank in order to get the whole banking experience.
- Does your child need a transactional or high interest savings account? Younger children tend to be best suited to savings accounts and tweens and teens, transactional ones.
- Should they have an ATM card? Teens and tweens tend to need access to their money as well as saving money. An ATM card can be useful. Younger children can get them with parental approval. If possible, get an ATM card that doesn’t with charges for withdrawing from another banks’ ATM.
- What are the charges? Ask the bank for a full list of charges and consider them carefully. Children have different banking behaviour to their parents, which may result in them incurring fees. Beware of service and transaction fees, withdrawal fees, and honour and dishonour fees in kid’s accounts
- Should we get a bonus saver account? These accounts, which pay additional bonus interest if you limit withdrawals, need the type of discipline that few children have. Without the bonus, the interest rates on these accounts can be paltry. Likewise prize accounts could encourage a gambling mentality.
- Do you want to restrict access to your children’s account? Some children’s banking accounts allow the parent control over the accounts. Children have been known to empty their accounts on a whim without their parents’ knowledge.
- Would your children benefit from a passbook? Younger children love watching their balance increase in a passbook. Some kids’ account providers still offer passbooks.
Education before financial growth
Given the typical small balances that the child will have in their account (at least in the early days) parents should be opening the account primarily for their child’s education and financial literacy, rather than looking for a high rate of interest. Providing the account offers a competitive interest rate, look for an institution that offers educational material, games and even a dedicated kids website that get the kids engaged. In the long run, that will be far more valuable than the small difference in interest rate.
Finally whatever aspect of money for kids you’re interested in, do your homework together. Thanks to osmosis, your children will learn some great financial lessons if they’re involved in the process of choosing a bank and finding the best interest rates.