I am on the hunt for a bank account for my son Hayden (pictured) who is turning one this year. It’s for those who would rather gift him cash than trek their way through the likes of Baby City and a gaggle of screaming toddlers to find a gift for this birthday.
After living in the United Kingdom for nine years and being exposed to the banking system there, I have to say I am disappointed in the South African big four. In my view, the costs of a basic transactional banking for children in South Africa is too high and it could even erode into children’s hard earned pocket money if parents don’t teach their children how to use their bank accounts wisely. Here’s why:
In South Africa is that you can’t save, deposit or transact in some way without the banks charging you for it. Even products aimed at children charge. A simple comparison conducted by our sister website, Moneybags, of transactional accounts for children (under 18s) offered by the big four (Absa, FNB, Standard Bank and Nedbank) drives this point home.
While most of the accounts don’t charge monthly fees, there’s one that does if you don’t know the rules. With FNB’s Fluid Youth account you need a minimum balance of R500 or your child gets charged R5.80 a month on balances below that.
So if your child plans on doing lots of withdrawals then FNB’s account is not for him or her. The reality is parents have to think carefully when they are choosing an account for their children because costs could so easily eat away at small savings pots, depending of course on which account you choose.
In FNB’s case, if a child saved up R50 and deposited it into the FNB Fluid Youth account that amount would be gone in ten months time if that child maintained that balance. In fact, the child would be R8 in the red.
The only way around the fee is if you, as the parent, link your FNB card to it and order the bank to direct the fees to it. But unless FNB gets the order – it won’t get done.
I don’t think that children’s bank accounts are simple enough. Would parents remember to tell their kids that they can withdraw money from their account but that if their balances hit below R500 that they would then be charged on a monthly basis? Would children remember that only a certain number of withdrawals are free and that deposits costs more over the counter than via an ATM. Why all the rules?
Perhaps I am not giving our children enough credit because they do tend to catch on quickly and are technologically savvy. But when it comes to kids I think simplicity is still key. More importantly though, why do banks here in South Africa feel its right to charge our kids? Or do they want to hit them with the reality of banking costs as quickly as possible?
I know that the big world out there isn’t fair but give our kids a break or some treats for goodness sake. As a new parent I’ve discovered that you have to sometimes incentivise your child to do something they don’t want to do. In a world of instant gratification it may be hard to persuade a child to save their hard earned cash when there isn’t any reason to.
Any clever kid will soon figure out after a couple of months that there’s no reason to put money away. I can just see how the conversation would go:
Mom: “Johnny, here’s R50 why don’t you put it in your bank account.”
Johnny: “Why? I want sweets.”
Mom: “Cause if you save more money you could have more sweets in the future.”
Johnny: “But mommy bank charges and withdrawal fees reduced my last R50 to a negative balance.”
Mom: “You have a point Johnny. Go buy some sweets.”
If anything, the banks are teaching us and our children that it’s costly to save and have access to that money at the same time. But banks are shooting themselves in the foot. If they got it right the first time and early on with young clients they could potentially win their loyalty well into adulthood.
I believe that children’s accounts should have no monthly or transactional fees and that they should have reasonable interest rates to incentivise children to save and to show them that money can grow and gain compound interest. You can show kids the harsh reality of costly banking products after they’ve turned 18 and gotten a job. For now let kids be kids and enjoy their cash.
In the United Kingdom banks don’t charge children any fees (including withdrawal and deposit fees). Some UK banks even offer children interest rates as high as 4% with access to their money.
Here, out of the big four, only three (Nedbank, FNB and Absa) give some interest on children’s transactional accounts. Nedbank offered the highest with 2.5% on its Nedbank4me account. Absa only awards their client's balances 0.15% and FNB gives up to 2.05% in interest. Standard Bank doesn't offer any interest on balances (see table below).
Here, out of the big four, only three (Nedbank, FNB and Absa) give some interest on children’s transactional accounts. Nedbank offered the highest with 2.5% on its Nedbank4me account. Absa only awards their client's balances 0.15% and FNB gives up to 2.05% in interest. Standard Bank doesn't offer any interest on balances (see table below).
FNB doesn’t make it easy though as its highest interest rate doesn’t kick in on any balance. To get the 2.05%, your child would have to have R100, 000 or more in their account. How many children would have access to that kind of money in South Africa? And interest of only 1% kicks in from balances of R1, 000. Anything below R100 generates no interest.
Costs to withdraw and deposit also vary depending on who you bank with. The highest cash withdrawal fees are charged by FNB. They charge R6.30 per R500 transaction and also R6.30 on anything below R500. The good news for FNB Youth Fluid account holders is that it doesn’t cost you a cent to withdraw money provided you don’t withdraw more than six times in the month.
Depositing money can be an expense too or it can cost you nothing, provided you know the rules. With Absa’s MegaU account, for instance, if you deposit less than R500 in the month you don’t get charged. However, thereafter, you are charged R1.25 for every R100 you deposit. The Nedbank4me is even less generous as children can only deposit the first R100 for free and get charged R1.25 thereafter.
So which bank account did I choose for my child you ask? I went with Nedbank. The reason? A one year old doesn’t withdraw money and I know that the money will get 2.5% in interest.
Sorry FNB and Absa. But for now my child won't have a balance over R100,000 to get 2.05% and Absa's 0.15% didn’t cut the mustard. But once Hayden gets of an age where he wants access to his money, I will be doing the same investigation again to see which bank will be the best for his needs.
Sorry FNB and Absa. But for now my child won't have a balance over R100,000 to get 2.05% and Absa's 0.15% didn’t cut the mustard. But once Hayden gets of an age where he wants access to his money, I will be doing the same investigation again to see which bank will be the best for his needs.
Top tips when comparing children’s bank accounts:
1. Always check the costs of withdrawing and depositing money.
2. Use online banking whenever possible as it saves you money. Try and deposit money electronically – this is generally free.
3. See if you can get fees redirected to your account if possible so that they don’t eat into your child’s savings.
4. Teach your child how to use the account. Warn them not to deposit or withdraw cash over the counter as this is very costly. Teach them to manage their money online as it’s cheaper or free.
5. Make sure that any transactions get linked to your cell phone so that you can keep an eye on your child’s spending and savings habits.
6. Familiarise yourself and your kids with the banks’ rules around the account – this will save you money in the long run.
7. Teach your child about interest and about the value of saving money.
8. If you or your child doesn’t need access to the money consider savings plans that offer more interest or other investment products that offer more interest.
9. Speak to a financial advisor for advice on the best savings vehicles for your child’s money.
10. Don’t keep your child in the dark. Take your child with you to the bank or advisor so that they learn about money and how savings/transactional products work.
How the banks compare:
How the banks compare:
|
Bank account |
Monthly account fees |
Interest |
Cash withdrawal fees (own bank ATM) |
Cash deposit fees (own bank ATM) |
Electronic deposit |
Balance enquiry at ATM |
|
FNB Fluid Youth Account (Standard option) |
None on balances of R500 and over. Monthly account fee of R5.80 on balances below R500. |
Between 0% and 2.05% depending on the deposit amount. |
First six ATM withdrawals from an FNB ATM are free and after that R6.30 per transaction. |
0.70% per deposit. |
Free |
Free, mini-statement print outs are R2.80 |
|
Absa Mega U |
None |
0.15% |
R4,20 |
First R500 at no charge, thereafter R1,25 per R100 |
Free |
Free |
|
Standard Bank Sum1 Account |
None. Minimum balance R20. |
0% |
First three are free, then R3,50 + 1.10% of withdrawal amount |
First four deposits are free then R4,00 + 1.20% of deposit value |
Free |
Print out costs R1.10, while display is free. |
|
Nedbank4me Account |
None, minimum balance of R10 |
2.5% |
First two free then R1.25 per R100 or part thereof. |
First R100 free, thereafter R1, 25 per R100 or part thereof. |
Free |
Free |
Correct as at: 16/05/2014