The snakes and ladders of kids’ bank accounts

School’s in and to raise precious funds, parents' groups around the country are going all out.

For many, this includes gratefully collecting the cash paid by some large Australian savings institutions for offering school banking. offers quality resources to help parents independently teach their children about money.Credit:

When fundraising comes with some implied financial literacy, it sounds like a win-win. However, you need to think of this as "the spin".

Most institutions also directly "reward" their young customers for a certain number of deposits via a gimmick or game, such as snakes and ladders.

As Kirsty Lamont, director of research house Mozo puts it: “Before you roll the dice on some snaky marketing ploy, the best lesson you can teach your kids about banking is to look past the promotional puff and compare interest rates.”

So let’s see whether these accounts offer decent savings… or whether there are better options.

Best kids accounts

Mozo analysed 49 kids' accounts for Money and found our biggest banks are offering young savers average interest rates of just 1.66 per cent. That is a full 1.1 percentage points lower than the most competitive offering, which is 2.76 per cent in bcu’s Scoots Super Saver.

Just a whisker behind bcu is Sydney Mutual Bank (2.75 per cent), Police Bank (2.3 per cent) and Coastline Credit Union (2.1 per cent).

“Although you might not be familiar with their names, smaller banks and credit unions are usually top of the class when it comes to interest rates on kids’ accounts,” says Lamont.

What is telling is that the financial institutions that offer their services in schools usually also come top of the pops when it comes to a child’s eventual biggest future debt – their mortgage. That’s why high-profile banks spend big in schools.

My Interest Integrity Index reveals how much excess interest a child will pay if they choose to stay a long-term customer of a big-four bank – a shocking $128,000. That funds a lot of school banking.

Dodge the dodginess

Childrens' bank accounts also come with a confusing array of qualification conditions. For example, you may have to deposit $10 and not make any withdrawals in any given month, to qualify for bonus interest. And the base interest on other months could be pathetic.

Opening a bank account for your child is about establishing a life-long savings habit. Saving then (delayed) spending is the whole point; it’s how you get child excited about money.

The Australian Securities and Investments Commission will report soon the outcome of an inquiry into school banking, with preliminary findings showing that the system does little to create a lasting savings habit.

Choice finance policy adviser Patrick Veyret told Money: “It's time to stop banks using schools as a marketing channel to sell products to our children. Our kids deserve a quality financial education.” offers some good resources to help parents independently teach their children about money. Programs like this should be automatically embedded in the school curriculum.

Talking points for your child about school banking

★  No bank is the best at everything. In your life, you will need to choose many different ones, and keep moving, to grow your money the most. Don’t let gimmicks turn you into a customer for life.

★  Saving means success… it’s also how you buy great "stuff". You need to decide what you want to buy and save for it.

★  You need to save (and preferably invest) 10 per cent of all the money you earn in your life for the “future you”… to make your later life better. Six dollars a day invested at 8 per cent from age 15 would make you a millionaire by 60.

★  Your interest rate is all-important… it’s how much extra you will make (or pay). For savings, you want it to be high and for any borrowings, low.

★  Check whether a savings interest rate is a sure thing, or whether you have to jump through hoops to get it. If it’s the latter, know how much money you would miss out on each month you don’t qualify. If you are likely to lose out often, opt for a savings account with the highest base rate.

★  Debt is bad – it’s spending money you don’t have, which means you always pay more than the cost of the item (the interest).

★  Borrowing to buy a house is smart. If you get a low interest rate, pay it off as fast as you can to make it the cheapest possible.

Nicole Pedersen-McKinnon is the author of How to get mortgage-free like me, available at Follow her on Facebook, Twitter or Instagram. 

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