Money can be a tricky subject to teach your children, especially since you may feel like you could do with a refresher course at times. However, making mistakes with your finances can be an important way to learn, and there are some lessons which can only be learnt the hard way – it is the tools you have to help you recover from those lessons which make all the difference.

Therefore, make sure you give your children the right tools to manage their finances from the beginning, learning the importance of saving, how to spend wisely and not only how to avert a financial crisis, but how to solve one too. One of the best crisis solving tools anyone can have is a healthy savings account and whether you are saving for a child yet to be born or one who is too young to count let alone calculate, or whether you are aiming to give your children some hands on experience with banking and saving, have all of your questions about childrens savings accounts answered here, and learn how to make meaningful comparisons of all of the kids’ savings accounts out there to find the one which is right for your family.

What are the benefits of a childrens’ savings account?

While you already know that raising children is going to be expensive, you want to save not just for expenses, but to set your children up in life as well. In addition to planning your savings to cover the day to day costs of raising a child such as their food and clothing, think about how just a small savings effort on your part now, can help your child in a big way, no matter what they decide to do with their life.

For example, if your child decides they want to go to university, in addition to the costs of the course which can be as much as $16,000 a year (often for three to four years) there are also the ongoing costs of transport, books and stationery and if your child needs to move out of home to live closer to where they are studying there are then costs such as rent or board. While many university students work, and your child may too, you want to make sure that their study remains their primary concern and their top priority to allow them to perform at the top of their class, and go on to perform at the top of their industry.

Even if your child doesn’t pursue a university education, they may be more suited to an apprenticeship or an internship where they can learn the business skills they need to acquire before going at it on their own in business. By setting up a savings account for your child early, you can make the start up process easier for them as it can be difficult for young people to find the funding they need to pursue their small business – and ultimately big business – dreams.

You could also help your child get a good start in life by setting up a regular savings plan to go towards their house deposit. Lenders like to see a savings history before lending to anyone, especially young first home buyers but in getting your child’s savings started with a childrens’ savings account early, and encouraging them with your own contributions, you will have built the both the necessary funds and habits needed for home ownership.

Children can benefit so significantly from their parents’ early savings strategies because of compound interest. Compounding interest earns you interest on interest where the interest earned in the previous day or month is added to the savings balance when interest is calculated the following day or month.

The average childrens’ savings account will be earning around 7% interest and this is where the 777 savings strategy comes in because if you open an online savings account for your child with a $700 starting balance and you contribute just $77 each fortnight, after 22 years you will have a savings balance of more than $108,000. Just as you are marvelling at how quickly your child has grown into an adult, so too can you marvel at just how much your childrens’ savings account has grown in an apparently equally short amount of time.

How should you save when you are planning children?

Children are without a doubt a long term investment and so you should make sure your finances are ready for the long haul from the beginning. In order to plan your savings for a child, you need to start thinking ahead before they are even born. The way you save for your children before they are born and before they know or understand money depends on your own savings habits and household income.

For example, if you are able to commit to transferring a designated amount to a childrens’ savings account each week, you may find the contributions easy to make, after all a fortnightly $77 contribution is just $5.50 per day and amounts to over $100,000 for your child when they’re 22 years old. In this way you can steadily grow a savings balance through your own contributions and the benefits of compounding interest. It also means that if you do find you need access to your childrens’ savings account to cover day to day child bearing costs then you can avert a financial emergency and not be charged penalty fees.

Alternatively if you don’t think you have the discipline, or if you have an erratic income because of contract or seasonal work, you may be more easily able to deposit a lump sum amount into a term deposit savings account for your child. A term deposit is a fixed interest, fixed investment account into which you deposit a savings amount for a set term of your choosing – anywhere from one month to five years. After this time you can’t make any more deposits and you can’t withdraw the money without penalty, however each and every day of your term your savings earn the same interest rate and guarantee your returns. Unlike a high interest savings account which has a variable interest rate which may go down as the provider adjusts their standard variable rate, a term deposit rate is guaranteed, and compounds to a guaranteed return.

Term deposit accounts are also fee free and while some require a minimum opening balance, others can be opened with as little as $100. While the interest rate on a term deposit is guaranteed not to go down, when you are comparing interest rates, make sure you choose one which will also be keeping up with the inflation rate each year.

How to choose the best childrens’ savings account for your kids?

While your comparisons of a high interest savings account for yourself will yield an account with the features and benefits which suit your needs and goals, your children are probably too young to be able to match their financial goals to savings account features, there are several features you can look for which will benefit most childrens’ savings goals:

  • No monthly fee or transaction fees. Your child will probably not be depositing large sums of money to begin with so you don’t want their contributions to be consumed by fees.
  • No minimum amount required to open the account. This allows your child to start their savings plan with as much or as little as they have in their piggy bank and not be discouraged.
  • Daily interest calculations. When interest is calculated daily it compounds at a faster rate, and allows your child’s savings to grow more quickly. Even a $5 deposit made each week throughout the month will earn more interest than a $20 deposit at the end of the month.
  • Bonuses and incentives. Children are not alone in seeking a reward for their hard work but it is important that they see that their hard work is not going unnoticed, and that they have an incentive to deposit more, and deposit regularly, in order to earn bonus interest.
  • Regular statements. This gives your child a tangible link to their savings and teaches them to be diligent in checking their accounts for suspicious transactions.
  • Online access. Using their account online not only gives you the opportunity to teach your children how to access their bank accounts securely and practice good online security techniques, but also gives them the opportunity to avoid many transaction fees which are often associated with branch transactions.

    • All of these childrens’ savings account features act together to help your child become financially literate. They can see where their money is going and why, they can set goals and reach them, and they can start learning about how to deal with their financial institution. If your child’s school runs a banking program you may want to get your kids involved there too as this makes for an easy opportunity to deposit funds, as well as be a part of classroom banking activities, not limiting their learning just to home.

    How do you teach children to use their savings accounts?

    Comparing childrens’ savings accounts and setting up regular deposits can seem easy in comparison to the actual lessons you will need to teach your children about how to use their bank account. This can be because many parents don’t feel as though they are a suitable savings role model, however, if you have reached this point, if you have sought out the best savings account for your child, if you have started them off on their savings plan with regular deposits of their own, then you are well on the way to setting them on the right financial path for life.

    When teaching your children how to use their savings account, remember:

    • Teach them how to set savings goals. Everyone has their own methods to encourage themselves to part with their money and put it into savings, but one of the most effective is to visualise what you are saving for. Therefore, if your child wants to purchase something in particular, have them make a list or cut out pictures of the things they want to buy, to encourage them to put aside some of their pocket money each week.
    • Teach them about different savings goals. Before you encourage a savings plan for a goal purchase, make sure the purchase is an achievable one. You may need to explain to your child about the difference between long term and short term savings goals as buying a new book will take considerably less savings than the goal to buy a new bike.
    • Motivate them to achieve short term goals. This is why a childrens’ savings account which sends regular statements is so important because if you think you are impatient in saving for something you reeeeally want, consider how much shorter your children’s attention span is. Therefore, encourage them by making a chart for the fridge or their bedroom wall which shows their goal, how much they have to put aside each week to reach it, and where they are on the chart now. Checking bank statements and updating the chart allows your child to actually see the difference their contributions are making.
    • Teach them about saving for the long term. When you’re a child it is hard to think past the next weekend’s activities but before you – and they – know it, your child will be thinking about moving out of home and wondering how they are ever going to afford their own place. While explaining long term savings in these terms may be a long shot for younger children, start explaining about putting money away for bigger goals, and for a rainy day. As your children get older you can explain the benefits of compounding interest and they will soon realise that the more they save, the more interest will accrue.

    We all want to help our children avoid the same mistakes we’ve made, but eventually they too will be wondering how to best help their children avoid new mistakes. What you can do is put the time and effort into researching and choosing the best childrens’ savings account now, so that you know you’ve done everything you can to ensure a bright future for your children in every way.