Here's some parental homework for you now that school's back in session: Teach your kids a practical lesson about personal finance by finding them a proper bank account that pays interest.
A basic rule of personal finance for kids is that the reward for saving money is making a few extra bucks through interest. Unfortunately, the accounts for children offered by most banks teach an entirely different lesson, which is that most banks pay little or no interest on their so-called savings accounts.
For that reason, the best bank accounts for children are the regular, everyday adult accounts offered at a select few banks.
One is President's Choice Financial, an on-line bank (pcinfinancial.ca) that is a joint venture between Canadian Imperial Bank of Commerce and Loblaw grocery stores, many of which have PC Financial information kiosks.
Your kids will not learn the joys of standing in line at a bank branch lineup if they use branchless PC Financial. But they will be able to deposit or withdraw money at any of the 4,000 or so CIBC bank machines across the country, and they'll be able to keep track of their account on the PC Financial website.
They also won't have to worry about account fees because they don't exist with PC Financial's no-fee bank account (unless you use overdraft, but never mind). This means that kids have unlimited ability to use the Interac direct payment system to pay for things using debit and to make bank machine withdrawals.
Most any child's account at a big bank offers a certain number of transactions with no fees, so PC Financial's not unique in this area. Where it stands out is in allowing children to make a decent rate of interest on their savings.
The typical big-bank children's account pays interest of 0.05 to 0.35 per cent, which could turn out to be mere pennies a year. As it happens, PC Financial's No Fee Account pays interest of just 0.10 per cent for balances under $1,000. But the bank also offers a way for kids and other clients to earn interest on their savings at a rate that is currently set at 3.05 per cent.
When setting up a PC Financial No Fee Account for your child, just ask to have an Interest First savings account as well. Children who are saving money indefinitely can keep their money in the Interest First account and, when they want to spend it, they can transfer it into their regular account over the Internet at no cost. Net result: a competitive rate of interest combined with zero fees and lots of convenience.
Note: PC Financial pays a much more attractive rate of 4 per cent on its Interest Plus savings account, but you need a minimum of $1,000.01 to qualify.
Bank of Montreal offers an attractive deal for kids through its Plus Plan, where the regular $8.50-per-month fee is waived for youths up to 21 years old or students, and its Premium Rate Savings Account.
As high-interest savings accounts go, BMO's premium rate product is kind of lame. The rate is now 2.6 per cent, whereas the top players in this market today offer between 3 and 4 per cent. Still, there's lots of flexibility because kids deposit and transfer their money at BMO branches if they want, or use the Internet.
Also, BMO's Plus Plan allows the account holder up to 20 separate accounts. So a child who is saving for a few different things could set up separate savings accounts for each at no extra cost. For regular banking, the Plus Plan offers 30 free transactions a month, which is ample.
Another on-line option is Citizens Bank of Canada (citizensbank.ca), a Vancouver-based operation that has been around since 1997. The account to choose here is the Ultimate Savings Account, which carries no monthly fees and currently pays 3.4 per cent interest. Account holders get four free bank machine withdrawals a month with this account, after which they have to pay 19 cents per transaction (52 cents as of Nov. 1).
A drawback with the Ultimate Savings Account is that you can't use it for debit purchases. If that's a problem, then Citizens Bank's no-fee Investment Account might work. It pays interest of just 2.4 per cent, but offers a bit more account flexibility.
Citizens Bank's account application can be downloaded off the bank's website. Parents and children must apply jointly and the parent must send in a cheque to verify his or her identity. From there, a kid can have as much access to their account as the parent allows through bank machines and the Internet.
You can get a generic children's account at most any bank, and some even come with cute names and characters on them. If you really wanted to get your kids interested in savings, though, find an account that actually pays interest.
Rob Carrick