Savings Accounts for Children
Children learn a lot from their parents, and this is very true when it comes to financial matters. By starting a savings account for your children at a young age you can start them down the path to a financially secure future.
When opening a savings account for your child there are a number of things you need to consider. Firstly, you need to ensure that you’re opening an account that is right for the child’s needs, as well as finding an account which offers the best interest rate and lowest fees.
Another important consideration is the tax implications of opening an account for your children. For small balances this may not be a concern, but as the interest earnings increase you may find that taxation becomes an issue for yourself and your child.
Why children’s savings accounts are a good idea
By starting a savings account for your child you are demonstrating the importance of saving to them at a young and impressionable age. By making regular contributions to the account you will further reinforce the benefits of saving.
Not only will these lessons be of benefit to your children, but if you maintain the account and continue to grow it over a long period of time you could give your child a great financial boost towards their university education, first car or even a deposit on their first home.
The real trick is to teach your children about the importance of saving at a young age, and then transition them into saving their own money once they start to earn it from a part time job or similar.
Choosing a children’s savings account
Many Australian banks offer savings accounts tailored specifically for children. Many of the accounts have no fees or at least very low fees, so this is definitely something you should look out for.
Some children’s savings accounts also feature bonus interest to encourage saving. These generally work by offering a bonus level of interest provided that regular deposits over a certain amount are made into the account.
It is important to check for any age limits on children’s savings accounts before applying. Children’s savings accounts have maximum age limits anywhere from 12 to 18, so you need to ensure you are opening an account that will be suitable for your child’s age.
One area that is often overlooked by parents opening a savings account for their children is taxation.
Depending on the amount of interest that is being earned, tax may be payable by the child or potentially the parent. Taxation rates and rules commonly change, so it is important to check the latest figures.
This means that your child can earn up to a certain amount per year without being affected by tax. In some cases the interest earned on a child’s account may be attributed to the parent, and the parent will have to declare the income on their own tax return. This is generally the case where the funds are used by you to cover expenses for the child.
It is very important to structure your tax affairs correctly, and parents are advised to contact their accountant if they are unsure about the tax implication of their child’s savings account.