High interest savings accounts can help a lot of people save money to buy what they want. These are most commonly used by people with businesses and individuals with a bit of savings. However, many providers will offer children high interest savings accounts so they are able to save up for some of the large costs that may occur later in life. This article will explain what the high interest savings account is and what the main features of the account are. Furthermore, this article will also explain why these accounts are important and how you can open an account.
High Interest Savings Account Comparison
Youngsters Need to Develop a High Interest in Saving Money
Often, speaking to a young person has to be somewhat qualified and succinct. As an example, you might say something like this:
Let the bank hold your $10.00 in a safe place for a little while and it will give you back $11.00. Let the bank hold it a while longer and it will give you back $12.00.
With language such as this you can probably convince even the most mathematically challenged youngster to appreciate the power of saving and earning interest.
Let's Play Bank
To establish the value of saving, you might want to open a “pretend” bank for your youngster. Have the youngster set up a bank account with you. A piggy bank would be just fine. Start paying them interest on any money they might deposit. These deposits might be from a weekly allowance or cash gifts from birthdays and Christmas. This would be an excellent time for the youngster to learn the 10% (at least) savings rule, as well as the benefits of compound interest.
Time for a Real Bank
Once the youngster has these fundamentals processed, or if you are dealing with a youngster well beyond the piggy bank stage, it's time to start looking for a real bank. Hopefully the youngster will have ready a minimum deposit, usually around $25, depending on the bank, to open a real bank savings account. Shopping for a bank with your child is another great opportunity to introduce the realities of the business and banking world.
Brick and Mortar vs. Online
The biggest concern for you and your youngster will be finding the best interest rate offered. Finding a bank with low or no fees and high interest rates is going to fall more favourably with online institutions. They don't have the overhead costs that brick and mortar institutions must look after. But you and your kid will both have to bone up on internet security and password issues. On the other hand, going to a bank in the neighbourhood and talking to a real bank officer, and actually handing money over to a teller, will go a long way in helping a youngster understand the process, and it can do a lot to bolster a young person's self-confidence. Ideally, you will find a brick and mortar that caters to online banking, since that’s the wave of the future.
Making a Shopping List
Your search for a good place for your youngster's savings should be pretty broad. Online institutions, traditional establishments, and even credit unions and building societies, should be included in your search. You'll find excellent offers in each group and you're bound to find a savings institution that will meet your specific requirements. On this site alone you can sift through a plethora of establishments eager for your business and offering good recompense. Here are the basics for a shopping list when you and your youngster start the search:
Youngsters just starting out with a savings account are not usually going to have a lot of money to stash, and none of it should be eaten up with fees. Most savings institutions recognise this and have no-fee accounts for youngsters. If an account seems attractive beyond the fees required, just weigh the pros and cons and proceed.
What would be ideal is a high-interest savings account with at least 5% interest, compounded daily and deposited monthly. You will find some deals with even higher interest rates. Just be sure to check the account to see if that rate is an introductory rate that might fall abysmally after the “honeymoon” period.
You should be on the lookout for bonus offers. Some savings establishments will kick in a higher interest rate during months when no withdrawals are made. If the youngster has a long-term goal or just wants to save, these deals are an excellent opportunity. Some savings institutions will offer a higher interest rate if deposits of a certain amount are made monthly. These could be great for the young entrepreneurs who are babysitters, dog walkers, delivery persons, etc.
How to open an account - names on the account and taxes
You have many options when you are looking for the best institution to support your kid's saving habit. You also have some choices regarding the government's ability to levy taxes on any interest income generated. You choice will be guided by the ultimate goal (college, car, new bike, etc.) you and your child have in mind:
In Your Name
You can open a high-interest savings account under your name with the understanding that the child is the major benefactor of the account, thereby allowing him or her to be a generous and willing partner. This has an advantage in that you can link it to an existing account of yours to make it easier to pull funds into the savings account and meet deposit demands that will kick into really high-interest savings. You will owe taxes on any interest earned by the youngster's (and your) savings.
In the Youngster's Name
This approach involves the child in a very personal way and may provide some incentive to really being a good saver. The child will not be responsible for any assets earned from the account because of the legal age being 15 before taxes can be levied. To avoid taxes, your youngster will have to register for a Tax File Number (TFN) if their interest income is more than $420. If a child does not have a TFN, the rate of taxation grows to 46% on interest earnings. This is necessary to stop parents or guardians from hiding money in a youngster's savings account. There are no age limits on getting a TFN.
With You as Guardian
This depends on where the money comes from and how much interest has accrued. If your child has $90 in a savings account and it comes from gifts and odd jobs, no one owes anything up to a limit of $420. After that, the child will have to declare a TFN or taxation is at the rate of 46%. Since you are a signatory on the account, you would have to claim the interest income on your taxes at your usual rate, or the child would owe the onerous amount of 46%. Again, a way to thwart tax evaders.
Keep Searching and Read the Fine Print
Understand that not all kids savings accounts are automatically high interest with no fees. Read the fine print, especially if something seems a little too good to be true. You and your youngster should scout all the possibilities and come to a consensus. You will have spent some real quality time with each other and you will have shared learning about the importance of saving. That's just as important for you, after all, as it is for your youngster. Be a good example.