-Advice- Opening a Bank Account for a Newborn

whitepuma on 27/11/2023 - 08:57
Last edited 27/11/2023 - 08:58

Hi All

Have a new-born coming next year. Just wanted to know your opinions on getting a bank account setup for them. I want to set something up so when friends, family, or even my partner and i want to send money to the little one we have a place for it to go where it can grow with minimal fees.

Given the age, I can't see money needing to come out of this account for at least the first 10 years, and of course I want to try and use this account as a method to teach my kid the importance of saving especially as they get into their teens.

Back in my day CBA had dollarmites, not sure if that's still a thing.

What's your recommendation? what's out there? and what's the best way to approach this? is there something i'm missing when considering a bank account for a little one?

Financial Bank Account

Comments

  • boomramada on 27/11/2023 - 09:00
    +2

    Congratulations, Get a home loan, once it paid off, hopefully some goes to your kid. :)

  • SBOB on 27/11/2023 - 09:09
    +5

    Vanguard Personal Managed Fund - High Growth
    Set it up with the initial $ required ($500) and any future deposits don't have a minimum $ requirement.

    When they old enough to get pocket money then deal with a 'bank' account for any 'this is your money to choose to save/spend etc' with the associated lessons that comes with.

  • ESEMCE on 27/11/2023 - 09:11
    +12

    Not worth it.
    You've got ~5 years before the child even has a vague understanding of money and more like 6-7 before they'll be able to calculate monetary transactions and even then, it's another leap of logic to go from "here is some physical money" to "imagine these is some physical money in a bank somewhere and this plastic card can access that".

    A Money Box is a better first step (obviously not for a newborn), to get them doing the sums when they make a transaction with their own (physical) money and understand the value of money and the concept of working to "earn" money.

    You potentially open up issues with Taxation (depending on how much money you build in the account) if you open an account in their name, so if you still really want to put monetary gifts aside, just create a new joint bank/investment account with your partner/wife that you can store money in and can transfer to your child in ~16 years. That way any tax burden falls to you (minimal additional work) versus to them, meaning another tax return you have to manage each year.

    • whitepuma on 27/11/2023 - 12:20

      i hadn't factored in the tax implications of this, good to know, thankyou.

      i really wish there was a way to keep accounts like this exempt of taxation, especially when we are talking about such small amounts (like when the grandparents give them $50 for their birthday and say "keep this for your education")

      • ESEMCE on 27/11/2023 - 12:48
        +7

        i really wish there was a way to keep accounts like this exempt of taxation, especially when we are talking about such small amounts (like when the grandparents give them $50 for their birthday and say "keep this for your education")

        Then all the rich folk would just put all their money into their kids names and pay even less tax than they already do.

        Note that the high tax rate only applies if you're earning Interest/Dividends over the tax free limit for a minor.
        Which might not be a problem if the only money going in is $50 here and there.

        HOWEVER if your child is earning any "income", you still have to complete a full tax return each year for the child and that's just additional work for you over the coming 14+ years (until you can teach the kid how to do their own tax return) and all for very little benefit.

        • whitepuma on 27/11/2023 - 13:25

          Then all the rich folk would just put all their money into their kids names and pay even less tax than they already do.

          Yes, but like i said, make it exempt with small amount (both small transfers and small total in account) and limit it to 1 account. I don't know what that threshold is, but obviously someone putting $100k in is going to get stung. But the average low & middle income households that are putting in a couple of hundreds (collectively) from bday's & other celebrations, i think it should be a small enough amount that it shouldn't be impacted by tax.

          Note that the high tax rate only applies if you're earning Interest/Dividends over the tax free limit for a minor.
          Which might not be a problem if the only money going in is $50 here and there.

          Noted, thankyou!

          • RockyRaccoon on 27/11/2023 - 14:15

            @whitepuma: How can you teach a kid about money it is just gifted to them.

            If they earn it with say jobs/chores at least they will understand it more than when they get to >10,when they then can buy their own mobile implant/ PS9 with the money but have no idea what it takes to earn that.

            Not saying dont gift it, but dont delude yourself its teaching them much about finances

            • whitepuma on 27/11/2023 - 14:16
              +1

              @RockyRaccoon: why can't you do both? it's not binary

              If a relative goes to give them money, I'm not going to refuse the money and say "no, they haven't earnt it".

              But at the same time, when they are old enough, i expect them to also work for their money.

    • Duckie2hh on 27/11/2023 - 13:21
      -2

      OP wants to teach the kid what poor financial decisions compounded over 10 years look like.

      • whitepuma on 27/11/2023 - 13:27
        -4

        Who hurt you? is everything ok?

            • Duckie2hh on 27/11/2023 - 13:30
              -2

              @whitepuma: I just pointed out the fallacy in your proposal. If you don't like it, feel free to keep walking :)

              • whitepuma on 27/11/2023 - 13:33
                +1

                @Duckie2hh:

                pointed out the fallacy in your proposal

                right, so…

                Please pay off your loans first

                also

                OP wants to teach the kid what poor financial decisions compounded over 10 years look like.

                What proposal were you reading from?

                Again, you have a very different idea of what "helping" is compared to everybody else here that has commented with something constructive.

                • Duckie2hh on 27/11/2023 - 13:38

                  @whitepuma:

                  What proposal were you reading from?

                  What's your recommendation? what's out there? and what's the best way to approach this? is there something i'm missing when considering a bank account for a little one?

                  I pointed out that any interest earned from a bank account will not cover the interest in any loan you may or may not have. SBOB above pointed out an excellent idea in ETF, which teach kids the process of compound interest and impact on long term growth in investing.

                  OP wants to teach the kid what poor financial decisions compounded over 10 years look like.

                  Still correct when compared to the multitude of other options you have. This lesson will be beneficial, as your child will hopefully learn from this example and not follow in the same footsteps.

                  • whitepuma on 27/11/2023 - 13:44
                    +1

                    @Duckie2hh:

                    I pointed out that any interest earned from a bank account will not cover the interest in any loan you may or may not have. SBOB above pointed out an excellent idea in ETF, which teach kids the process of compound interest and impact on long term growth in investing.

                    But you don't know what my loan situation is. For all you know i could be completely debt free. So your comment, although you think it was helpful, was not actually what i was asking and didn't answer the OP. Also, of course there was the rude delivery of starting it with "Just why?", later followed by you saying i want to make poor financial decisions for my kid.

                    So no, you're not being helpful.

                    Maybe work on your delivery and assumptions before jumping in.

                    Your behaviour is toxic for the OzB community, the way you are responding is more aligned with how someone on reddit would respond, get better.

                    • Duckie2hh on 27/11/2023 - 13:47
                      -2

                      @whitepuma:

                      But you don't know what my loan situation is

                      I also pointed out the fact that investment in an ETF would be an excellent option.

                      If pointing out the errors in your post gives you toxic vibes, perhaps stay off the forums.

                      • whitepuma on 27/11/2023 - 13:52
                        +1

                        @Duckie2hh:

                        If pointing out the errors in your post gives you toxic vibes, perhaps stay off the forums.

                        Evidently you didn't read my previous comment. I didn't mention that pointing out errors in my post gives toxic vibes, Many other people recommended an alternative, spotted issues, and responded in a helpful and constructive manner. I said your behaviour is toxic, there is a big difference.

                        • Duckie2hh on 27/11/2023 - 13:57
                          -2

                          @whitepuma:

                          I said your behaviour is toxic

                          By pointing out the negatives in your proposal/post?

                          I didn't mention that pointing out errors in my post gives toxic vibes

                          Yet you are so triggered. Perhaps we should end with, lets agree to disagree :)

                          PS:

                          Many other people recommended an alternative

                          Here you go, "I’m a parent. What resources do you have available to help me teach my child about money?
                          All our youth financial education resources for parents are available in our CommBank Youth Hub, where you can access a range of free resources including videos and worksheets." Reference: https://www.commbank.com.au/banking/school-banking.html

                          You're welcome.

                          • whitepuma on 27/11/2023 - 14:03

                            @Duckie2hh:

                            By pointing out the negatives in your proposal/post?

                            You're going in circles, i already pointed out specifically what about your behaviour and comments is toxic. Re-read the comments.

                            Yet you are so triggered.

                            I wasn't triggered by other peoples comments, so what do you think is different about your comments and the other ones that suggested a different idea?

                            • Duckie2hh on 27/11/2023 - 14:05
                              +1

                              @whitepuma:

                              I wasn't triggered by other peoples comments, so what do you think is different about your comments and the other ones that suggested a different idea?

                              Pointed out "The interest it earns will be peanuts compared to any loans you may have.". Granted I should have led with, "may or may not have", so that was my bad.

                              • whitepuma on 27/11/2023 - 14:06

                                @Duckie2hh: And that's the only difference you noticed?

                                I feel bad for you then, if you can't see it, then you have no opportunity to improve.

                                • Duckie2hh on 27/11/2023 - 14:08
                                  -2

                                  @whitepuma: Sorry that you are triggered. As I said before, "Perhaps we should end with, lets agree to disagree :)"

                                  if you can't see it, then you have no opportunity to improve

                                  I hope your kids learn their lesson well :)

                                  • whitepuma on 27/11/2023 - 14:09

                                    @Duckie2hh: @Duckie2hh Sorry that you can't see what's wrong with your behaviour.
                                    Agree to Disagree.

                                    • Duckie2hh on 27/11/2023 - 14:10

                                      @whitepuma: You tagged me twice by mistake. Just FYI.

                                    • RockyRaccoon on 27/11/2023 - 14:19
                                      +4

                                      @whitepuma: Just a side note. You make a post here, accept that opinions might not be what you are looking for. Goes with territory. 😀

                                      • whitepuma on 27/11/2023 - 14:21
                                        -3

                                        @RockyRaccoon: i'm realising that now, i was just hoping people would be nice and respectful on an innocent post, whilst still offering input (even if it may be different to what i originally suggest). All but 1 person did, not bad all things considered.

                                      • Duckie2hh on 27/11/2023 - 14:33

                                        @RockyRaccoon:

                                        thumbsup

    • The Hawk on 28/11/2023 - 10:31

      Tax Burden? It's only ever going to be a % of the interest earned, simple enough to pay out of that account on their behalf if/when the time were to come.
      Even then, how much needs to be in the account before it actually causes anything approaching an issue?
      Sure when they get a job and need to lodge a tax return, but even then if there was a fee it could come out of the savings account as needed right?

      Maybe I'm just too poor to know about taxation issues for my kids savings accounts :P

      • ESEMCE on 28/11/2023 - 10:58

        Tax Burden?

        The time taken to prepare the additional tax return is likely the biggest "tax burden" that I'm referring to. Unless you're a squillionaire in which case you'll have an accountant to do it anyway.
        Once you do the first one, you're signed up to do them annually. Even these days where everything pre-fills, that's still an additional 15 minutes per year for very little benefit.

        Even then, how much needs to be in the account before it actually causes anything approaching an issue?

        All you need is to earn $1 income (interest/dividend) to require a tax return to be completed. And once you have a TFN, you need to complete a return every year I'm pretty certain.
        If you're paying an accountant to do your kids tax return on their $100 bank account eaning 4% ($4) Interest, you're losing money guaranteed!

        • The Hawk on 29/11/2023 - 09:23
          +1

          I decided to look this up as it's something I've never done for any of my kids bank accounts:

          https://www.ato.gov.au/individuals-and-families/investments-…

          Seems up to $420 of interest payments for kids under 16 isn't taxed at all but once you're over that you need a TFN or the bank pays tax for you that you need to claim back. It's a little more complicated than that, but that's the general gist.

          In context, that would be $8,400 @ 5% interest. Probably not too much of an issue if it's capturing the $50 birthday presents from grandparents but if you were putting in even just $20 / week you'd hit that limit around their 8th birthday (less actually with interest and other people contributing those $50 gifts).

          • ESEMCE on 29/11/2023 - 09:59
            +2

            @The Hawk: I learned something too, but IMHO you picked the wrong trigger point.

            The trigger for additional effort is only $120/year, not $420

            any age and they earn less than $120 per year from savings accounts per year, their financial institution will not withhold tax

            ie the financial institution assumes you're earning above the $420 trigger point if any one account earns more than $120 in Interest and all of a sudden you're staring at Tax Returns with an Account balance of ~$2500ish (I didn't bother doing the actual sums), or you're accepting a 47% withholding tax rate on earnings when it should be 0%.
            Sure you just need to apply for a TFN at this trigger point and supply that TFN to the Financial Institution and you're back up to that $420 total per your numbers. But then you better keep your eye on those account balances!

            It just sounds like a whole lotta additional work for (profanity)-all benefit. The kid isn't learning anything about finances if the money is in a bank account somewhere. Comprehending that isn't going to start until 8+.

            Handling cash is a far easier concept for a young mind. They can see/feel it and therefore know when they have a lot or a little, and even then, it can be a bit confusing. My kids have been handling cash from 4ish and despite ~5 years experience, it's only about now that they can comprehend that a $10 note is probably better than a handful of Silver.
            That's understandable in kid logic …"I've got more (silver, in both weight and count) so that must be better than having less weight/fewer count (gold/notes)"

            They only get maybe $200/year and to date we've encouraged them to spend it on things they want, learning how to do the sums and calculate "value". They've been through the purchase regret cycle of buying something on a whim and then changing minds but no longer having enough money and they're now pretty savvy and have the "Ozbargain mindset" of looking for things on sale and comparing prices.

            We're still a few years away from even thinking about bank accounts.

            • Duckie2hh on 29/11/2023 - 10:07

              @ESEMCE:

              It just sounds like a whole lotta additional work for (profanity)-all benefit. The kid isn't learning anything about finances if the money is in a bank account somewhere. Comprehending that isn't going to start until 8+.

              thumbsup

            • The Hawk on 29/11/2023 - 10:17

              @ESEMCE: To get the $420 threshold the account needs to be in their name and you need to provide a DOB which is why I chose that level. Given you typically need a birth certificate (at least I did when I set up my kids accounts) that's all in there anyway :)

              • ESEMCE on 29/11/2023 - 10:49

                @The Hawk: That and, according to your own link, you also need to also provide a TFN.
                If you do not, the Financial Institution is obliged to withhold tax at 47% (on the amount above $120) if the account/s earn interest exceeding $120/annum.
                (at least that's the way I read that highlighted point)

                • The Hawk on 29/11/2023 - 10:55
                  +1

                  @ESEMCE: If your child is:

                  • any age and they earn less than $120 per year from savings accounts per year, their financial institution will not withhold tax

                  less than 16 years old and earns between $120 and $420 from savings accounts per year and

                  • provides either their date of birth or a tax file number (TFN), the financial institution will not withhold tax and they don't need to lodge a tax return
                  • doesn't provide either their date of birth or TFN, the financial institution will withhold pay as you go (PAYG) tax at 47% and they need to lodge a tax return if they want a refund

                  It's either/or in their requirements, as long as you're doing one of those the $420 applies to kids under 16. As you're pointing out (and I said) it's a little more complicated than a blanket $420, but for most kids, most of the time it's going to be that simple … unless they have greater than $8,400 in savings @ 5% and/or have a job at which point they need a TFN and to be lodging tax returns anyway.

                  • ESEMCE on 29/11/2023 - 11:24

                    @The Hawk: Yeah, cool. I didn't read enough to find the exception.

                    provides either their date of birth or a tax file number (TFN), the financial institution will not withhold tax and they don't need to lodge a tax return

  • FoxJump on 27/11/2023 - 09:47
    +6

    another offset on your homeloan, where the kids money goes to - until you get that one big purchase or yet-another-interest-rise and you need to dip into it too.

    • Duckie2hh on 27/11/2023 - 13:48
      +2

      Sorry OP may or may not have any loans. Let's not make the same mistake I did 😂

      • whitepuma on 27/11/2023 - 13:59

        Delivery is everything, Foxjump isn't being rude with his assumption. He also isn't proceeding to say OP wants to teach the kid what poor financial decisions compounded over 10 years look like

        Thanks for your advice @FoxJump, i genuinely appreciate it.

        • Duckie2hh on 27/11/2023 - 14:00

          Good job @FoxJump :)

      • boomramada on 27/11/2023 - 15:51
        +1

        If OP don't have a loan, get a investment property and start a new loan. If OP can't get a loan. fair enough, if that the case investing under OP's name is the best option.

        • Duckie2hh on 27/11/2023 - 16:25

          Good idea. Although OP might prefer to leave the children's money in the bank to teach them a lesson on the eroding effect of inflation.

  • Duckie2hh on 27/11/2023 - 10:00
    +2

    Just why?

    Please pay off your loans first and track the lil one's saving on a spreadsheet. The interest it earns will be peanuts compared to any loans you may have.

    • whitepuma on 27/11/2023 - 12:16

      Just why?

      I explained that in my post

      Please pay off your loans first

      You don't know my situation.

      I know that when my kid reaches an age where they can start accepting money, like cash from the grandparents, i want to show them where they can put it so save up for something else.
      I don't think it will have as strong an impact on teaching my kid about money if when they receive a gift i take it off of them and say "thankyou i'm putting this against my mortgage and i'll log it in a spreadsheet for you"

      • Duckie2hh on 27/11/2023 - 12:28

        You don't know my situation

        Yet you come on ozbargain to ask the opinions of random internet strangers.

        Well by opening that bank account, you can teach your kids financial literacy at the same time as showing them what poor financial decisions look like.

        • whitepuma on 27/11/2023 - 12:33
          -1

          Yet you come on ozbargain to ask the opinions of random internet strangers.

          yeah, so? my question was specifically about opening a bank account for a newborn. It made no mention of existing mortgages, or my current financial situation.

          • Duckie2hh on 27/11/2023 - 12:46

            @whitepuma: And you got your answer. No one mentioned mortgages.

            If you do not have any loans, then congratulations.

            • whitepuma on 27/11/2023 - 13:11

              @Duckie2hh: You mentioned loans, sorry, didn't know you were going to nit-pick at that, i'll correct my previous comment

              Yet you come on ozbargain to ask the opinions of random internet strangers.

              yeah, so? my question was specifically about opening a bank account for a newborn. It made no mention of existing loans, or my current financial situation.

              • Duckie2hh on 27/11/2023 - 13:13

                @whitepuma: Thank you

                • whitepuma on 27/11/2023 - 13:15

                  @Duckie2hh: Thankyou for a comment that added no value

                  • Duckie2hh on 27/11/2023 - 13:16
                    -1

                    @whitepuma: Your welcome. I think you missed a space between the word "thank" and "you".

                    • SBOB on 27/11/2023 - 13:26
                      +3

                      @Duckie2hh:

                      your welcome. I think you missed a space between the word "thank" and "you"

                      always a bonus when you correct someone's spelling and make a classic your/you're mistake in the process.
                      gold stars all round :)

  • JimmyF on 27/11/2023 - 10:05
    +2

    your opinions on getting a bank account

    Even for kids, you need to meet the ID requirements. Plus most transaction accounts have next to 0% interest paid on them. So you're better off just stuffing the cash into a piggy bank for them instead as it'll be worth the same in 10 years time ;)

    You could look at opening a high interest account in your name, and parking the money there but you'll have to eat the tax for money earned, which I'm guessing won't be much.

    Back in my day CBA had dollarmites, not sure if that's still a thing.

    Not really, CBA got slapped around a while ago for giving schools 'kickbacks' for this arrangement to create lifelong customers. Basically CBA paid the school for each account opened and each deposit made by kids. Little unethical nowadays.

    • Mechz on 27/11/2023 - 10:51

      Yep they always tried to sell it to us from like 6 or 7 years old but my parents banked with a local bank instead so I never got one.

  • Muzeeb on 27/11/2023 - 10:17
    +1

    Once the kid is born, congratulations by the way, this will be the furthest thing from your mind. Wait until they start school and review your options then.

    • whitepuma on 27/11/2023 - 12:12

      i know people, specifically family, that will want to give gifts, usually cash. I just want to make sure it's going somewhere that is going to the kids future for when they are more responsible or know what they want to spent it on.

      I had thought of the idea of just putting it in my own account and keeping a tab on how much we are putting in, but i don't know i feel like it will help the little one later on if they actually have an account for use later.

  • FrugalFranky on 27/11/2023 - 10:25
    +2

    I opened a new account under my name in my selfwealth trading account.
    Simply add gift money or my monthly set amount to it. Buy stock (ETFs and growth) to grow for 18 years.
    When I receive a gift from family, I ask them what stock they'd like me to buy. I've been slowly buying the stocks that I feel like the kid will see as he grows up (ex: google when watching youtube, mcdonalds, amazon, disney)

  • cheekymonkey on 27/11/2023 - 10:33
    +6

    I opened some (local) credit union kid's accounts. 12 months ago they did pay peanuts, but these days it can be over 4%. Keep in mind, if it's opened in their name, if the annual income exceeds $416 the tax rates are astronomical. Hence you can't have high amounts there and things can add up quickly over next 10 years.
    https://www.ato.gov.au/tax-rates-and-codes/tax-rates-if-you-…

    • whitepuma on 27/11/2023 - 12:10

      interesting, i hadn't factored this in, really helpful

  • Benoffie on 27/11/2023 - 10:55
    +3

    First, your child cant have their own account (not if you're planning on earning big interest). Find one that works for you and just remember its for them. Register them for TFN when of age.
    Second, explain that to the family (biggest issue) - why is the account not in baby x's name? 🤔 🙄

    Look, it's up to you how you grow their wealth. We put all birthday, xmas etc cash in plus my parents gave money every fortnight. When it got to around $5k, i bought shares. They kept paying, i kept investing.

    At 17, he now has a nice start and money is now his as he has TFN. Could it have been more? Sure. But it's a lot more than i had and he didn't have to work for it.

    Atm, it's in NAB reward saver account. I can see it, so can he and the grandparents top up triggers the bonus. Im comfortable earning 5+% doing nothing and with extremely low risk.

    • whitepuma on 27/11/2023 - 12:24

      This is excellent, thankyou for the pointers

  • Protractor on 27/11/2023 - 11:29
    +1

    Bitcoin or buy them shares in AI research.

    • whitepuma on 27/11/2023 - 13:38
      -1

      Although i'm all for investing for my kid, i think i'm going to spread the funds around a bit more. Not just limit it to crypto & AI

  • AustriaBargain on 27/11/2023 - 12:43
    +2

    Don't forget to put 3 million into their super. If you can't beat inflation, you may as well ride the wave baby.

    • whitepuma on 27/11/2023 - 13:20

      "a small loan of $1mil"

  • trapper on 27/11/2023 - 13:36
    +4

    Basically any bank will let you open an account for your kids.

    It will be linked to you as the parent and you will have complete control over it.

    As they get older (age ~9) they will be able to get a debit card if you want them to, and then when even older it becomes more like a normal account which they control. (age ~14)

  • Bandook on 27/11/2023 - 22:10
    +1

    Vanguard Australia has offering for kids account. You could set up an auto invest option and also get a bpay number for friends and family to chip in as gift

  • numloxx on 28/11/2023 - 09:51
    +1

    How about a term deposit? After 18 years it'll build up.

    • Duckie2hh on 28/11/2023 - 10:14
      +1

      Inflation will eat it all up.

  • Nicoletta on 28/11/2023 - 09:54
    +1

    I have an account opened "in Trust" for each of my children. I expect most banks offer something like this. The ANZ Progress saver offers bonus interest which I believe is not taxable.

    • eckorock on 28/11/2023 - 10:39
      +2

      I am pretty sure you are incorrect in your understanding of the tax situation

      Opening the account "in trust" means that the account is in YOUR name and that you have to pay the tax on any earnings, as if it was your own.

      There are no forms of interest earnings that aren't considered taxable income by the ATO. You'll see on your next downloadable EOY tax statement

    • Duckie2hh on 28/11/2023 - 13:26

      not worth it.

  • jrvb42 on 28/11/2023 - 12:23
    +1

    Sounds like you need 2 accounts.
    One is contributed to by everyone and the little sprog shouldn't know about it until 18, maybe hold in trust.
    Second account where its own money is put so you can teach it about saving and responsible money management.

  • James tee on 28/11/2023 - 14:00

    Dollarmites won a Shonky award https://www.choice.com.au/money/banking/everyday-banking/art…

    My kids have kids/free Vanguard accounts which teaches them a few lessons.

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