Updated: 07 Feb 2010

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Introduction

We compared kids' accounts from 10 banks – and found some hard-to-beat deals.

Having their own bank account is a great way for kids and teens to get financially savvy, and all the major banks have accounts suitable for under-18s. But we found it pays to shop around when choosing a bank account for your children - interest rates differ and so do fees and charges.

What to look for

Some accounts are clearly better for saving, others better for frequent transactions and there are plenty which suit both purposes. 

Savings accounts

Accounts geared towards savings are good for younger kids and older children who don’t need frequent access to their savings. The account will reinforce what they’re increasingly being taught in school (see "Banking ABCs") and give them a good introduction to the importance of saving.

• The key feature to look for in a savings account is how much interest you'll get and how low the fees are.

Transaction accounts

If you have teenagers or near-teens you’ll know how often they end up spending money – bus fares, snacks, mobile top-ups – and how having an everyday transaction account can become essential.

• For an account that’ll be used more frequently, look for one that comes with an ATM card and make sure you won't get charged any direct penalties for making withdrawals.

ATM cards

There are big differences in the minimum age the banks require before issuing kids with ATM cards.

With adult signatory (which usually means parental) permission SBS Bank would issue a card at age 5, the TSB Bank, PSIS and ANZ at age 7 and Kiwibank and The National Bank at age 10. ASB had no minimum age as long as one of the parents signs a guarantee and indemnity for the account. Westpac would issue a card at 12 and BNZ wouldn’t issue one until age 13.

We think that if the ATM card is going to be actively used, 12 and upwards is an appropriate age.

We asked a dozen or so secondary-school students about their banking habits. Our group ranged in age from 13 to 17 and most had ATM cards. Nearly all the ATM users sometimes used machines that were not from the bank that issued their cards. Our group was not a heavy user of bank branches – only a few had been into a branch to make a withdrawal. The number of transactions made in a month varied from under five to over 30.

If you're going for a transaction account, it's a good idea to choose one that doesn’t incur a charge if the ATM card is used at another bank’s ATM. In our picks we looked for this as well as good interest rates and no fees or other charges.

Don't pay too much tax

All interest that’s paid into a child’s bank account gets Resident Withholding Tax (RWT) deducted before it’s credited to the account. Getting an IRD number for your child and supplying this to the bank means the lowest RWT rate (19.5 percent) can be used. Otherwise a "no-notification" RWT will apply (either 38 or 39 percent – the rate varies across banks).

To apply for an IRD number, you’ll need to complete an Inland Revenue Department IR595 form. IRD can post the form (and a guide to completing it) or you can download the form and guide from www.ird.govt.nz.

Our picks

Best account for transactions & savings

The TSB Bank Freestyle Junior came out on top as both a transaction account and a savings account.

It has no service, monthly account or transaction fees – and no charge if another bank’s ATM is used. It pays an attractive 3.5 percent interest rate and unlike the TSB Bank Horizon has no minimum-balance requirement. This account’s available for children aged from 7 to 16.

Branch access with few withdrawals

If you need access to a bank’s branch and don’t plan to make any withdrawals, SBS Bank's Incentive Saver and TSB Bank's Horizon might suit.

The SBS account pays 3 percent interest if no withdrawals are made in a month (and 0.5 percent otherwise) and it has no fees or charges. At 3.5 percent interest TSB's Horizon account is up there with the best but kids pay dearly for withdrawing any funds – the fee is a whopping $5 each time a withdrawal is made. And the TSB Bank’s Horizon’s requirement for a minimum balance of $1000 won’t suit every young saver. However, one point to consider is although SBS and TSB Bank have nationwide coverage – they have fewer branches than the larger banks.

Neither the SBS Bank's Incentive Saver nor TSB Bank's Horizon accounts came with an ATM card.

Savings account with ATM access

If your children need access to their savings via an ATM card the PSIS accounts are a good option.

The PSIS Dollars and Sense account (available for children aged up to 12) pays up to 2.75 percent interest and charges no fees (not even for using another bank’s ATM machine). Funds can be withdrawn from a PSIS branch as well as by ATM card from age seven. The PSIS Dosh account is similar – but its interest (2.75 to 3 percent) is paid only if no more than one withdrawal is made each month and the account is available only to those aged 13 to 18.

Note: PSIS is not technically a registered bank; it’s a “financial co-operative” owned by and run for its customers. But – for simplicity – we’ve referred to all institutions in this article as banks.

Savings account with restricted access

If it’s purely a savings account you’re after and you want to restrict your child's access to their savings, RaboPlus Online Call account could do the trick.

With 3.5 percent interest, this account is one of the most generous. It has no service, monthly account or transaction fees. No minimum balance is required and access isn’t restricted to any particular age group. But there’s no access to a bank branch or an ATM machine, so if your child needs to withdraw funds this can only be done via an online transfer to their nominated account at another bank. The nominated bank may charge account or transaction fees.

The rest

We also reviewed accounts from ANZ, ASB, BNZ, Kiwibank, The National Bank, and Westpac. These come with ATM cards and usually have no monthly account or transaction fees; but they can charge service fees (such as dishonour fees) and do charge a fee if another bank's ATM machine is used (but if you're with ANZ or National you can use both banks’ ATMs without incurring a charge).

An interest rate of 2.5 percent is common among these accounts although The National Bank School Plus account pays less than 2 percent unless you have more than $2500 in your account.

Westpac Starter Pac

Westpac has recently launched a kids' banking product called Starter Pac: if your child has a savings account with Westpac and also joins KiwiSaver with Westpac – it'll waive the KiwiSaver administration fee of $2.59 per month as long as a deposit is made every year into the savings account. The fee is waived for 2010; normal fees apply once the child turns 19.

Accounts compared

Note: Our survey was carried out in December 2009; all rates are as at 15 January 2010. For regularly updated fees and interest rate information, see our Bank fees database.

 
 

 

Banking ABCs

There’s a good chance your kids will be discussing banking, interest rates and other financial topics at school these days. So having a bank account could reinforce what’s being taught at school.

In 2007 a new curriculum was introduced into primary and secondary schools. It introduced “learning outcomes” with financial themes. The schools are free to come up with programmes to achieve the learning outcomes, so what’s being done will vary from school to school.

Tawa Intermediate Principal Carolyn Stuart said its 2008 pilot programme was such a hit with parents and pupils – and such a success in a learning sense – that it was introduced to the whole school in 2009. Issues the students look at in the programme include meeting everyday costs, covering emergencies and saving for a holiday - essential skills for those earning pocket money and armed with ATM cards!

Banking at school has also made a bit of a comeback. ASB and Westpac allow primary-age kids to make deposits into their bank accounts at schools all over the country and SBS Bank provides the service in Christchurch. The National Bank offers a school banking service at around 100 schools where children act as tellers with assistance from bank staff.

Parents’ strategies

Having a bank account is a great opportunity for kids to learn about managing money.

Peter, a Consumer member from Palmerston North, told us that he and his wife arranged ATM cards for their two daughters when they turned 13. The girls had a budgeting system linked to their monthly allowance. The allowance covered things like clothing, bus fares, mobile phone costs and birthday presents for friends.

Before each month's payment went through the girls had to provide a record of how the previous month’s money had been spent. There were no recriminations, but the monthly review helped the girls see that money was limited and wise choices had to be made. The girls are older now and Peter has been really encouraged by the financial choices they’ve made.

Peter said he agreed when he heard someone say teaching children to handle money is like teaching them to drive a car – “We don’t just hand them the car keys when they are ready to drive and say ‘Go to it’!”

More information

• NZ Curriculum: www.nzcurriculum.tki.org.nz
• Interest rates: www.interest.co.nz
• Financial literacy: www.retirement.org.nz/centre-financial-literacy, www.yetrust.co.nz

Report by Susan Guthrie and Krista Matheson