Saving for your kid is still worth it – and clever management could see modest contributions accrue up to $5,060 in interest.
Yes, savings rates are low but just $100 a month could see your child come of age with $30,000.
And more than $5,000 of this could be interest or essentially free money - if you use the leading banking products.
Exclusive research for Yahoo Finance by data house Mozo has found that, although the official cash rate is at a rock-bottom record low, parents who play the available products right can still earn a decent return.
The leading kids’ account rate in Mozo’s database is 2 per cent, an Australian Unity product. Meanwhile, the average kids’ account rate is just 0.55 per cent.
It all means a proactive approach is essential to managing your child savings.
How to get the most out of kids’ money
The key is to constantly monitor the market, and ditch and switch to the new leading products.
The dollar projection above, a balance of $29,160 at age 18, requires moving. This is because of the differing age restrictions, and incentives, on kids’ accounts.
Mozo’s modelling is based on seeding your little one’s savings with a $2,500 initial deposit into the Australian Unity 2 per cent account at birth and then that regular $100 a month until age 12.
By that stage, you would have accumulated $19,464, $2,564 of which would be interest.
But at that point, you need to close the Australian Unity account as the high rate is only available on balances up to $20,000 - and you’d be about to hit it.
The smartest move once you have $20,000, if products were to stay the same in the future (which they’re clearly not going to, but if you have $20,000 stashed or planned to stash already) is to then go to the Police Bank, which pays 1.7 per cent up to $50,000.
Just watch the bonus conditions
Be aware, though, that kids’ accounts, just like adults’ accounts, often carry conditions you need to meet in order to earn the full interest rate.
That Australian Unity Kids Saver account, which is for children aged 14 and under? You only earn the full 2 per cent on the first $20,000 if you deposit at least $5 and make no withdrawals in any given month.
With the Police Bank’s Dynamo Kids Savings account (up to age 13) and then its Flex Account (age 13 to 17), the minimum deposit is $20 and an identical no-withdrawal stipulation applies.
Other institutions are a little more lenient in that they just require a deposit of any amount and no withdrawals within a month.
The following tables show the full details.
How to skyrocket your kids’ savings
After you reach that first $20,000 at age 12, Mozo’s modelling then assumes you continue to contribute $100 a month for the next six years, until your child hits 18.
That will land them with $5,060 in interest to take their total account value to $29,160.
It could be a whole lot worse if you’re not on the ball though.
Earn only the average 0.55 per cent kids’ account interest rate and your child would miss out on $3,689, depressing their total to just $25,470 after 18 years.
Of course, you could also always invest in the share market on their behalf – perhaps in diversified and cheap exchange-traded funds – to potentially make far greater returns.
But, unlike when you house money in a boring but safe bank, that would mean risking what you save in the first place.
Higher returns do not come without higher risk.
Perhaps a 50:50 split is best.