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30 Apr 2019

How to kick-start your children's savings

Whether you have a little or a lot to start with, the earlier you start on your children’s savings plans, the more benefit they could gain from compounding returns. However, not all savings accounts are created equal. Here we have some tips on how you can maximise the money you’re putting away.

Savings accounts
A savings account is a good place to start, as deposits of any amount and regularity can be made. Interest rates will depend on the amount deposited, and some accounts offer bonus rates if a deposit is made, and no withdrawals completed over a month.

A savings account is generally quite easy to set up, and deposits can be made electronically or over the counter. Just watch for any fees that might apply for over the counter transactions, to avoid fees into your savings. Also, keep in mind that interest rates can be quite low, so there is a risk that the savings may not keep pace with inflation.

A savings account is a good way to involve your child in active savings, as they can take their ‘piggy bank’ into the bank and help deposit their cash. Plus, funds are usually accessible right away, making it a safe place to put money aside for a future goal or for unexpected expenses.

Term deposits
Term deposits are for bigger savings amounts, with most term deposits requiring a minimum deposit of $1,000 or $500. Unlike a regular savings account, you cannot make additional deposits to a term deposit; once you deposit for the selected term, the funds are ‘locked in’.

Term deposits generally offer a higher interest rate than a standard savings account; if your children need to get to the money sooner, however, they will usually need to give the bank notice, and they may no longer receive the interest rate offered when they put the money onto the deposit.

Although Government annual contributions are only available to KiwiSaver members between the ages of 18 and 65, you can still open and make deposits to a KiwiSaver account for your kids. KiwiSaver returns will generally be higher than either a savings account or a term deposit, and like a savings account, you can deposit as much or as little as you like, at any time.

However, unlike a savings account or even a term deposit, funds deposited in KiwiSaver can’t be accessed until the age of retirement (with a couple of potential exceptions). Also, it’s very important to know the fees that are associated with your children’s KiwiSaver account, to make sure they are maximising returns. If you are keen on KiwiSaver for your kids, it’s a good idea to look for low or no fee KiwiSaver funds.
Starting savings habits is one of the best habits you can get your kids into. Show them it doesn’t matter if you only have a little bit to save; it’s what you do with it that counts.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek financial advice.

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