Let The Children Pay! Are Banks Really Helping Parents to Teach the Value of Savings?
PR Log - Aug 31, 2012 - Buyers must beware when choosing a youth bank account as some of these accounts can be subject to extra fees and charges that can wipe out interest earnings and may even chip away hard earned savings balances. Youth accounts at the Big Five Canadian banks offer either limited or unlimited free transactions, usually enough free transactions for the average ten year old, and an insultingly low interest rate. Youth accounts stay essentially the same, whether you are a baby or a high school student, and even though a child’s needs evolve over time their youth bank account won’t change much along the way.
The interest rates paid on youth bank accounts range from 0.01% on the Royal Bank Leo’s Young Savers Account to 0.30% on the CIBC Advantage for Youth offer. To put this in perspective, your child’s hard earned savings of $1,000 will reap an annual interest payment somewhere between $0.10 and $3.00. That is the upside. The downside is that some banks have extra charges that could slowly erode the youngster’s precious savings. This situation, where bank fees negatively impact savings balances, is not optimal for parents trying to teach their children good money management attitudes and behaviours.
A dedicated parent with a goal of finding the best youth account and the fortitude to undertake a comparison of the available options will need hours and hours to sift through the fine print and footnotes. Most parents won’t bother, preferring instead to open their child’s account at their own main bank, however, caution is required to make sure the savings lesson doesn’t backfire.
Youth accounts available at Canada’s Big Five Banks are aligned in many areas:
* All banks offer account options for youth under 19 years old that do not charge a monthly account fee. * All youth account interest payments are calculated daily and paid monthly. * All banks encourage the use of paperless recordkeeping options, such as online banking services, for account statements and transaction reviews. * Only CIBC and Scotiabank still offer the old-fashioned option of having a bank book to their young accountholders – both banks offer this recordkeeping service free of charge. * All banks charge a fee of $1.50 for cash withdrawals at another bank’s ABM machine. * None of the banks charge the youth account for receiving eTransfers into the account, a good way to make a regular allowance payment, however, sending eTransfers is a different matter. Banks may impose a cap on the number of free eTransfers that can be sent from an ‘adult’ account [if any are offered for free at all] beyond which fees may be levied on the sender aka parents. * Account opening procedures are fairly similar at all banks. It is wise to check with your bank prior to making the trip. All banks require that the child present some form of identification to open a bank account – babies included. * If the parent is present when the child’s account is being opened and the parent is a current customer of the bank, the child will need a minimum of one piece of ID. * If a parent or guardian is not present and the child is opening the account on their own, which some banks allow at age 12 or 13, the adult account-opening criteria is applied. The child must have two pieces of government issued identification – at least one piece with a photo.
Parents choosing a youth bank account should consider their child’s needs in terms of account reporting and monthly debit transactions. There are some significant differences between the banks and this is where the fees can really add up. All banks offer free online access to account information although if you would like your child to receive something in the mail each month you may well have to pay extra for this service.
The transaction needs of youth change as they age, especially when tweens become teens and start attending high school, yet the fundamentals of the bank accounts available to them don’t change at all. The 'tween to teen' turning point is when many young people start to use their debit cards almost exclusively. Why hike to the ABM to be forced to withdraw $20 when you only need $6 for lunch?
Some teens will give their debit card a real work-out each month and the ‘free’ transaction limits imposed by some banks may be reached surprisingly quickly. The teen who buys lunch a couple of times a week, goes to a movie or two each month and spends on the odd school supply, video game, or CD may be in for a rude awakening depending on which bank they deal with.
All youth accounts reviewed in this comparison are available to Canadians under 19 years old. At age nineteen all banks transfer the youth account to either a student account, if the youth proves they are attending a post-secondary school, or an adult bank account [with the adult fee schedule attached].
There are savings account options available to youth, beyond those available at the Big Five banks, which pay higher interest rates on savings. Some of the best savings account rates are offered by ‘online only’ banks that require that parents open the account on behalf of their children up to the age of majority in their province of residence [new accountholders need a valid chequing account]. To check out the savings account interest rates available in your area visit http://www.bankrate.com.
Money School Canada is now booking in-class Financial Basics workshops for Grades 4 - 11 for the fall term. If you are interested in having your child learn important personal finance essentials, from highly knowledgeable former financial services executives, in a super fun and interesting way contact us today! Students and teachers give the Financial Basics workshop top marks, it's approved by the TDSB and endorsed by the TDSB Financial Literacy Steering Committee.
Reporters can request .pdf copies of Youth Bank Account Comparison Tables by contacting Tricia Barry, Executive Director, Money School Canada at 416.932.1300