Choosing the right debit card for your kids

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More kids use debit cards rather than carrying cash, but there are good and bad cards.

There are pre-paid debit cards or debit cards that are linked to a transaction account. It's important for parents to help their kids choose because they come with strict terms and conditions and charge fees if the account isn't used correctly.

Damian Smith, CEO of RateCity, says: "There are definitely good and bad debit cards out there, which is why it's so important to compare deals online, otherwise you might be stuck with a dud and didn't even realise."

The main differences relate to the number of free transactions, says Smith. While most accounts don't charge transaction fees, RateCity found 12 out of 52 kids' accounts do.

On average, these accounts allow 13 free transactions each month but one - Australian Central Credit Union - allows only one free transaction a month.

After the free transactions are used, you will be charged fees for moving your money.

"There are about 45 different fees that get charged by different institutions for transaction accounts," Smith says. Many kids' accounts don't charge the following fees but some do.

RateCity says to watch out for a direct debit fee (average cost 48c), EFTPOS (78c), ATM withdrawal fee from own network ($1.09), ATM balance fee own network (95c), ATM withdrawal fee other network (63c), ATM failed transaction own network ($1.08), ATM failed transaction other network (95c), and branch cash withdrawal ($2.31).

While most kids have a savings account to accumulate money, many are not suitable for linking to a debit card. You have to set up a separate account for the transactions. Many parents put half of their money into a savings account and half into a transaction account. The savings account will earn interest - always an important lesson - while the transaction account will not.

Once your kids have their debit card it is hard to influence what they spend their money on. I have a friend who isn't happy about her son buying lollies at the corner shop with his debit card.

To guard against impulsive buying, you can always stick to cash. When it runs out, that's it. With a debit card they can spend all the money in the transaction account. RateCity's top five kids' accounts are Westpac's Kids Reward Saver with 6.2% interest, Cairns Penny Savings & Loans First Penny Saver Account (6%), Suncorp Bank Kids Savings Account (5.5%), ANZ Progress Saver for Kids (4.76%) and Commonwealth Bank Youthsaver Account (4.51%).

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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