A kids savings account is for children between 0-18 years old. This type of account pays interest on the money kids save, providing a nice reward for their efforts. It’s a great way to help your children understand the value of saving money, teaching them good financial habits from the get-go.
The exact age requirements can vary from bank to bank; some accounts are only available for ages 0-12, while others might only be available for children older than 12.
Opening a kids savings account allows your child to learn about the importance of saving, how interest works, and the sense of achievement that comes from watching money grow.
How are they different from a regular savings account?
Kids savings accounts have a few features that set them apart from regular savings accounts.
Minimum balance requirements: For kids savings accounts, the minimum deposit to open an account is lower or non-existent compared to adult savings accounts. This makes them more accessible; children can start their savings journey with a small amount. Some banks will have restrictions on balances over a certain amount. For example, interest may be earned at 5% p.a. up to $100,000 and then 4.00% p.a. for amounts beyond $100,000.
No fees: In most cases, monthly fees are waived, and often ATM withdrawal fees too, so youngsters don’t lose their savings to the cost of banking admin.
Higher interest rates: To motivate kids to save, these accounts usually offer higher interest rates than regular accounts. This means their money grows faster, which can be exciting for young savers.
Why open a kids savings account?
Here are a few great reasons to open a kids savings account:
Financial literacy: Kids savings accounts teach children the fundamentals of smart money management. They learn how money grows, the value of saving, and how to make financial decisions. This knowledge helps set them up for a successful financial future.
Compound interest: The beauty of savings accounts for kids lies in the magic of compound interest. The sooner children start saving, the more time their money has to grow. Thanks to compound interest, what starts as a small sum can grow to a sizeable nest egg over time.
Habit formation: Kids learn about setting financial goals, making regular contributions towards those goals, and a sense of achievement when they reach them.
No fees and higher interest rates: Kids savings accounts offer more favourable terms than adult accounts. This means the majority of the money children save stays in their accounts, helping them get ahead.
Young savers get ahead: The power of compound interest
To illustrate the power of compound interest, let’s do the math on a hypothetical scenario.
Suppose you open a savings account for your child at age 5 with an initial deposit of $200.
From then, $50 is contributed to the account each month until your child turns 18. After this, no more deposits are made, and the balance sits at $11,338 thanks to an interest rate of 5%.
With the magic of compound interest at an annual rate of 5%, by the time your child reaches the age of 65, their balance would have grown to around $118,306 (less account fees from age 18) even if no money is added to the account past their 18th birthday!
That’s the wonder of compound interest. It shows that the sooner you start saving, the more powerful the outcome can be.
Opening a kids savings account is not just about nurturing savings; it’s about teaching kids valuable financial lessons that will last a lifetime.
What happens when they turn 18?
Your child will transition to an adult account once they reach the age limit that applies to the account, usually 18, but it depends on the account. The balance is carried over to a regular account where fees and charges may apply.
How to apply for a kids bank account
Opening a kids bank account is generally straightforward. Typically, a parent or guardian can set it up in the child’s name.
The process can often be done online, though some banks may require an in-branch or phone application. Do check your bank’s specific requirements, as you’ll usually need identification for both yourself and your child.
Compare Kids Savings Accounts
Start young and grow good savings habits by picking the right account for your child