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Why You Should Set up a Savings Account for Your Child

When it comes to teaching your kids about money, it’s not just about dollars and cents. When was the last time you paid for something in cash? With all sorts of new technology, from tap cards to mobile apps, Canadians are increasingly moving away from cash as a preferred form of payment. So while you could give your child some money to put in a piggy bank, it might be a better idea to set up a youth savings account. Or you can always do both.

Saving and spending habits start young

Parents often pass on spending habits to their kids without even realizing it. When they see you buying all the latest things, they’ll often want to follow suit. So why not teach them about saving, as well? Reader’s Digest suggests a rule of thirds in which kids could spend a third, save a third, and donate a third of their allowances to learn about the different uses for money. The Globe and Mail’s Rob Carrick also suggests that parents open a joint account with a child once he or she starts reading and writing. Online banking makes it easy for them to watch their money grow without having it get lost around the house!

How to open a youth savings account

Most of the major banks offer youth savings accounts, along with some smaller players such as Tangerine, Meridian, and ATB Financial. The great thing about these accounts is that there are no monthly fees—you don’t have to teach your kids about bank fees just yet. Tangerine and CIBC are two banks that don’t charge fees for most transactions, such as using an ATM. That said, you might want to wait until your children has their first job before giving them a bank card.

When it comes to applying for a youth account, some banks, such as RBC, allow you to do it online. Others suggest that you call or visit a branch. In any case, it’s probably easier to pay a visit to your nearest bank branch so your children can see who’s looking after their money. That way, a representative can help them—and you—with any questions and guide you through the process.

In most cases, children under 13 can only open a joint account with their parents, not one of their own, so you’ll need to fill in some paperwork as well.

Don’t expect large returns

While it’s a good idea to teach your kids about compound interest, due to today’s low rates, they won’t see very large returns from a youth savings account. Right now, Tangerine is offering the highest return with a 1% interest rate on its Children’s Savings Account, while the big banks are offering rates between 0.05% and 0.15%. We have yet to see the likes of an EQ Bank enter the children’s savings sphere, and it’s possible we’ll never see a children’s high-interest savings account. So it’s best to treat these accounts as a learning experience, not an earning opportunity.

You can find out more about the latest rates and savings account features at our Youth Savings Accounts page.

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Flickr: OTA Photos