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Parents whose children have money lying around will naturally want to put that into a bank account.

While piggy banks or jars are great for the younger years, once money from Christmas and birthday presents, allowances and odd jobs add up, most parents want to open a basic savings account for their child, so they can start to learn financial concepts such as saving, budgeting and earning interest.

But navigating the confusing world that are children’s bank accounts, with their array of ages, debit and Interac options – as well as a maddening absence of details on bank websites – is not for the faint of heart.

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Then there is the dismal amount of interest paid on children’s bank accounts: rates as low as zero per cent, compared with the average adult interest rate of 1.18 per cent and the highest current offering in the marketplace of 3.3 per cent.

Kelley Keehn, author of The Prosperity Factor for Kids and a personal finance advocate based in Edmonton, notes that interest rate offerings in children’s accounts average $2 on a balance of $1,000, after three years.

“That would be so depressing for a child,” she says.

Worse, some lenders limit the amount of transactions or automatically roll kids’ accounts into low-interest adult accounts once they hit a certain age. It’s no surprise that financially savvy parents are steering clear of kids accounts altogether and adding children to their own higher-interest accounts – or opening investment accounts for them.

Peter Hadzipetros, a Toronto father of eight-year-old twin girls, was mulling opening children’s savings accounts to teach his daughters about saving – as well as the ins and outs of banking.

“I like the thought of going to the bank down the street so they can go into a physical branch with their jar of toonies, loonies and bills,” Mr. Hadzipetros says. “But with minimal interest [rates], and the bank’s desire to push them into high-fee accounts when they hit puberty, I think I’ll opt for one of the online banks.”

Banking industry consultant David McVay believes that while children’s accounts help educate kids about how banks work, they don’t offer much beyond that. In addition to low interest, some charge fees on transactions, such as debits, which can add up quickly for teenagers who tend to use their cards frequently.

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He feels banks should be trying harder to keep their future customers – and their parents – happy. “You have to think of the whole family,” says the owner of McVay and Associates in Toronto. "And kids can be vocal advocates fairly quickly.”

Opening a children’s savings account costs nothing. Though bank requirements vary, they’ll need a combination of the following: a child’s photo ID, such as a passport; a parent’s photo ID; proof of address; a child’s birth certificate or a social insurance number.

The Globe and Mail researched children’s bank accounts at a number of Canadian lenders. While official data on children’s accounts are unavailable, The Globe found that interest rates ranged from zero per cent at Laurentian Bank of Canada to 1.15 per cent at Tangerine Bank. The bright spots were Tangerine’s Children’s Savings Account, which in addition to the highest rate also has no fees, and Ontario-based DUCA Financial Services Credit Union Ltd., with branches solely in that province, which pays a bonus of $1 each time the balance increases by $50 to maximum of $12 a year.

Then there are transaction fees. Though most accounts featured no monthly fees and no minimum balances, Interac e-transfers ranged from $1.50 per transfer to unlimited transactions. National Bank of Canada, for example, offers a no-fee, no-interest Minimalist account that provides 12 free debits but charges $1.50 per Interac e-transfer, which can add up.

Parents have to be especially vigilant when the child’s plan ends. Many accounts, such as Bank of Nova Scotia’s Getting There Savings Program for Youth, automatically enrol kids in accounts that offer little to no interest when they outgrow the account.

Lender & Account Debit transactionsInterac e-transfersAccount feesFeaturesInterest 
Scotiabank Getting There Savings Program for YouthUnlimited2 free a month, $.150 per transfer after that $0 For age 18 and under. Includes SCENES or Scotia Rewards Program. 0.05% for balances up to $499.99; 0.10% for balances of $500 or more
RBC Leo's Young Savers Account15 free debits; additional debits $1.25Unlimited$0 For age 13 and under. Get $25 when you open an account, until March 31, 2020.0.01%
TD Youth Savings Account Unlimited50 cents on transactions of up to $100; $1 for each transfer over $100$0 For age 19 and under.0.01%
Tangerine Children’s Savings AccountUnlimitedFree. Can only accept e-transfers – not send them.$0 For age 16 and under. Adult must have account with Tangerine - account is operated as a joint account between parent and child.1.15% 
BMO Plus Plan For Kids: Premium Rate Savings Account, Primary Chequing Account 25 free per monthunlimited$0 monthly fee For age 12 and under. 0.05% for Premium Rate Savings Account; no interest on Primary Chequing Account
CIBC Advantage for Youthunlimitedfree$0 For age 18 and under. Free SPC membership for student discounts. 0.15%
Canadian Western Bank Youth Accountunlimited$1 $0 For age 18 and under. Must enrol in person at a branch. Branches located in Manitoba, Saskatchewan, Alberta and B.C.  0.05% for balances under $500, 0.5% for balances above $500 
National Bank Youth Accounts: The Modest and the MinimalistMinimalist account 12 debits a month; Modest account 30 a month$1.50 $0 For age 17 and under. Modest account requires $3,000 balance.No interest
Laurentian Bank Youth Accountunlimitedunlimited$0 For age 17 and under. For Quebec residents – branches only in Quebec.No interest
DUCA Children’s Bonus Savings Accountunlimited$1.25 $0 For age 16 and under. Branches only in Ontario. A bonus of $1 paid every time the balance increases by $50 to max of $12 a year. Enrol in a branch, Ontario residents only.0.25% interest paid semi-annually
Meridian Youth Savings Accountunlimited$1.50 $0 For age 17 and under. Branches only in Ontario for Ontario residents only.0.05%

Interest rates as of Jan. 15

A parent’s action plan

Ms. Keehn says building financial literacy is important – but a children’s savings bank account isn’t paramount in creating it. “Have really clear conversations about what that money is for,” she says, is what’s most important.

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As for Mr. McVay, he suggests parents consider setting up a high-interest savings account or an investment account for their child, such as contributing $50 a month to a balanced mutual fund. (It would be in the parent’s name.) That approach will leave the child with higher savings over the long run and teach her or him about investing basics.

In addition, digitally savvy kids will learn to manage their assets online. “They will learn how to access it on their phones more so than walking to a branch,” he says.

As for future rollovers, it’s wise to talk to banks about will happen to the children’s account once they outgrow it, he says. That way, parents can proactively avoid their child’s money from being transferred to a zero-interest account.

“See whether it’s in the child’s best interest or the institution’s best interest,” Mr. McVay says.

At the moment, Mr. Hadzipetros is leaning toward opening an adult online account for his girls, possibly Laurentian Bank of Canada’s 3.3 per cent adult LBC Digital High Interest Savings Account.

“I’m forgoing the bricks and mortar experience I grew up with,” he says.

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