Which savings account is best for kids?

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A savings account is a necessary building block in your child's financial education.

It teaches how contributing small amounts of money makes the pot grow over time, as well as the miracle of interest.

When to start a savings account is up to you. I waited until my kids were earning regular pocket money and they could read their statements and understand the conditions. Some parents set up savings accounts for babies and deposit one off amounts.

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The good news is that there are plenty of feature-packed kids' savings accounts on the market with no fees and bonus interest rates. Some have cute money boxes, easy to understand statements and interactive games. But make sure you read the terms and conditions closely before you sign up.

Research house Canstar Cannex found Bankwest to have the Best Kids' Savings Account for 2010 for Money magazine's Best of the Best awards. Bankwest's Kids' Bonus Saver account has a bonus interest rate of 10% - a high interest rate that is hard to go past.

Suncorp's Kids' Savings Account (5.5% bonus interest) came second while the Commonwealth Bank's Youthsaver (4.5% bonus interest) was third. Among the non-banks, Cairns Penny Savings and Loans' Under 16 Saver Account (6% interest on less than $2000) was the winner, followed by MyState Financial's Youth Account (3.5%) and Karpaty Credit Union's Club 18 (3.5%).

But watch out for age limits on kids' accounts. Many are for the under 18s but Bankwest's Kids Bonus Saver Account cuts out when kids reach 15.

Also look at the conditions for the bonus interest. Most require monthly deposits with some specifying the amount before the bonus interest is paid. Bankwest requires a monthly deposit of $25 to $250 to receive the 10% otherwise the base rate drops to 0.01%. Suncorp's minimum monthly deposit is $20 to receive the 5.5% bonus or a base rate of 1.5% is paid. However, Commonwealth Bank's Youth Saver has no minimum - as long as there is a monthly deposit it pays a bonus interest of 4.5%.

Most kids' saving accounts don't permit withdrawals if you want the bonus interest rate but Suncorp's Kids Savings Account allows one withdrawal each month.

There are plenty of other conditions too such as the length of time that the bonus interest applies. Bankwest sweeps all the money over $1 at the end of year into a low fee-paying account. While Bankwest or Suncorp doesn't give kids ATM or EFTPOS access, the Commonwealth Bank does.

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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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