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Kids Bank Account: How to Open One and What Options Are Available?

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This article is brought to you by insurance for children, Canada’s leader in financial planning for children and creator of Child Plan ™ the fastest growing alternative to the RESP. Child Plan, One Plan For Life.

Bank Account For Kids

Do you remember your first bank account? 

When your parents were children they had a bank account. When your parents started a savings account for you it may have been an online account. And for your children, you may be opening up an online trading account or a virtual savings account.

The future is changing fast, and as parents we are trying to make the best decisions today that will benefit our children tomorrow.

If you did have a bank account as a kid, did you learn anything about how to manage money, or was it just a place to swipe your debit card at Starbucks?

Did your parents ever sit you down and  help you understand things like money, investments, savings, interest, debit cards, debt, and other personal finance issues? 

So now that you have your own child, what’s your plan for their future? Is it a bank account, an investment account, an RESP for their education, or something else?

So how complicated do you think your child’s financial future will be?

By the time your children are 18 they will likely have more financial knowledge then your parents and grandparents put together, and it will be even more important for your children if they want to have financially sound or successful futures.

Sadly, the levels of required financial literacy in Canada today are as low or lower than ever. That might be because of a variety of reasons including the sources of information.

So what is the purpose of opening a child’s bank account? Is it to save for their future or to teach them about good money habits, like money management, and investment skills?

Kids savings accounts can be a powerful way of starting to teach your kids about personal finance, and how to use concepts of modern portfolio investment theory to work in their favor. In particular, the concepts of time value of money, and the power of compound interest.

How to Open a Bank Account?

To create a new online account, you usually provide two types of identification: passports for a child and SINs (separated by sex if a parent has a birth certificate or a parent’s birth certificate). Alternatively, you could book a virtual or telephone appointment with an advisor.  Student accounts are accessible from either the branch nearest you or online. The application process takes 5-7 minutes.

What is most vital for you to remember, is that all the online ads for children’s bank accounts are a great way for banks to market themselves to you. A children’s bank account is a great source of monthly fees for financial institutions, so be careful which you choose and ensure your child’s best interest is at the center of your plan.

Bank Accounts for Kids

Before opening a kid’s bank account, or an investment account for your child, it is important to understand the legal implications of these accounts.

In Canada, children under 18 are not permitted under law to sign contracts or enter into any agreements, which means that while it may appear to be your child’s own account in their name, it is actually an informal trust where your child is the beneficiary and you are the trustee.

This means that you manage the account until your child turns 18. Then your child has every authority and legal right to access the account and withdraw all the funds without your consent.

So before opening a bank account for your child, understand which one you want to open, what’s the purpose, and what will happen to that account when your child turns 18.

Most banks provide accounts for your children, and using your current bank will be the  most convenient. That would seem to make sense if you are opening a kids savings account when your child is a newborn, because it will be you who will be controlling the account for perhaps 10 – 15 years.

But not all savings accounts for kids are created equal.

Even a tiny difference in monthly fees or the interest rate paid can make a big difference to the results in the savings growth of the account.

With most banks offering online banking, having your kids personal account with a different bank than your own can be as simple as bookmarking a different page on your internet browser.

Kids Savings Accounts in Canada

 There are 4 things you want to find before you  open an account in your Kids name:

  1. No monthly fee – depending on your financial situation, if you are unable to contribute to the account, or if you just stop making contributions, you don’t want to see the value in your kids bank account eroded by a monthly fee. Showing your child they have the best kids bank account that is full of debt transactions, is not a great way to start teaching money skills.
  2. No minimum balance – for much the same reason as the point made above. Plus when your child starts using this account and wants to use the funds, how will you control their spending? While they won’t be happy if they find restrictions to making withdrawals, you are teaching them about budgeting and impulse control.
  3. Earns interest – your child won’t learn much about money, if their bank account is not benefitting from the financial concepts you are wanting them to learn. You will want  high interest savings accounts, allowing your child to see compound interest at work.
  4. Offers free transactions – or at least doesn’t have a low limit. Once they start using this children’s account for their own savings and spending, they’ll get frustrated if they can only make one or two withdrawals a month.

One of the main features you should be looking into when opening up a bank account or an investment account for your child, is the control that you will have over their spending. When you were a child you likely had a bank card and as the electronic and interactive payment systems grew so did your swiping of the card.

Imagine how fluid and easily your child will be able to spend their cash that you are working so hard to save.

It is important that when you open the account you inquire with the financial institution on all the rules, regulations and the spending limits and controls that you can put in place.

No Fees and No Minimum Balance

Of the ten top-rated kids’ bank accounts, none of them charged fees or had minimum transactions, although a couple of them do introduce these when the child turns 18.

Best Interest Rate

The Tangerine Children’s saving account offers 2% interest. This is miles ahead of other leading kids savings accounts. The CIBC Advantage for Youth is next best offering 0.5%. The rest of the top-rated kids bank accounts offer between zero and 0.2%.

Free Transactions

Six of the ten top-rated kids bank accounts offer unlimited debit transactions free, including the Tangerine Children’s savings account.

But there’s always a catch!

The Tangerine Children’s Savings account is an online bank only, and a parent has to open their own account first before they can open a kids bank account for any child.

The CIBC Advantage for Youth account is only available in British Columbia.

You can always approach your own bank and see if they can match these options or improve on what they offer as their standard kids savings account. It can’t hurt to ask for an account that   will pay interest, has free transactions, allows e transfers, no fee, is easy to transfer money into, and will teach your child good financial habits.

Frankly, even in the current low interest rate scene, the banks are ripping us all off when they offer such low interest rates.

Have a look at the interest rates that banks are charging their borrowers. Apart from home mortgages, most of the interest rates charged on debts right now are into double figures. The difference between what they pay depositors and what they change to borrowers is basically the profit the banks are making.

A kids savings account is a great idea for teaching your children the basics of making smart financial decisions in their tweens and teens as well as teaching your child the fundamentals of money management. But you should also include an investment plan for long-term growth for your child’s future.

For their long term financial needs and goals, parents have been told since 1998 that the only option available is the RESP. However as their parents, it is your responsibility to research every option for their financial future before committing your money for 18 years or more.

While parents have been told that the RESP is a savings plan for your child’s future education, it is actually a government program with government rules on where your child can study, what they can study, and how the money can be used. In other words the government will give you a benefit as long as you follow their rules.

That’s not very flexible and doesn’t give you or your child much choice.

Child Plan ™ is an easy-to-start plan that will serve your child and their changing needs once they reach adulthood. It has none of the limitations of the a children’s savings account and allows your child to benefit from real long-term investment growth. Just look for yourself how an investment into Child Plan ™ can grow over time.

Child Plan ™ Whole Life Insurance

Child Plan ™ is a powerful investment, and when combined with a kids bank account will set your child up for financial success.

With Child Plan ™ your child will receive a tax-free dividend each year for life and once your child is old enough to understand the value of money, you can show them how the plan you set up when they were only two weeks old works, including the power of tax-free compounding dividends. 

With Child Plan TM they will be able to compare the concept of savings in a bank account, vs growth of an investment. This will help your child understand the difference between a product from which you can make withdrawals at any time, and a product where you are investing long-term.

However, with Child Plan ™,  you have parental controls available so that you decide when your child can withdraw money from their plan, or when they are mature enough to handle this investment.

Unlike a bank account for kids which is an informal trust that permits the child at the age of 18 to withdraw all the money, as well as use the money through a debit card in their teens. With Child Plan TM the parents have complete control of the cash value of the plan even after transferring ownership with a plan to their child after the age of 18. As a parent, our primary objective is to protect our children from themselves.

To learn more about Child Plan ™, please visit insuranceforchildren.ca.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

Personalize Your Child Plan™

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*illustrations are reflective of the annual premium amount

Have a question about Child Plan or wish to speak with a Family Advisor?