An Irish Times guide to the world of personal finance.

Savings accounts for the under-12s

In the waning light of the festive spending hangover, new year resolutions abound especially on the savings front. Whatever about adult profligacy, most parents each year determine to ensure their children learn the savings habit early in life.

Many of the major banks and building societies have packages aimed at encouraging children to catch the saving habit while encouraging customer loyalty from the earliest ages. But just how do they compare to alternative deposit accounts and to what extent are they laden with gimmicks to tempt the unwary?

A brief survey of what is on offer for the under-12s at the major banks and building societies, as well as An Post, produced some surprising results.

The ground rules

Regardless of institution, some common factors apply. The law requires that accounts are opened in the names of parents or guardians for children under the age of seven. Accounts in the name of the children, particularly with An Post, cannot generally be accessed until the child reaches the age of seven.

Young they might be but children's accounts are subject to the same Deposit Interest Retention Tax (DIRT) as the rest of us. The figures quoted below are gross interest figures and have to be adjusted to take account of DIRT which will shortly be payable at 26 per cent (currently 24 per cent).

Getting them young

An Post offers the lowest entry threshold with its Cyril the Squirrel children's saving scheme allowing children to gather savings stamps for as little as 50p. Once they have £10 saved, they are eligible to open a regular savings account. However, the interest rates currently stands at 0.5 per cent on balances under £5,000. Nonetheless, An Post says it has a presence in primary schools around the country where teachers encourage their pupils to put aside money in stamps towards the cost of school outings.

Elsewhere, Bank of Ireland's Rainbow Club offers a personalised rainbow savings book; what it also offers, more importantly, is currently the most attractive rate of interest for young savers. On amounts under £200, interest is paid at 2.25 per cent, rising to 2.75 per cent on amounts in excess of £500. The rainbow rates of interest compare with a 0.625 per cent rate on ordinary demand deposit accounts.

AIB also offers an enhanced rate of interest - in its case 1 per cent above the prevailing variable rate on demand deposit accounts - along with a glitzy package of incentives on its Junior Saver accounts which can be opened with a minimum deposit of £1. Apart from an account book to keep track of savings, the bank gives each junior saver a special Banklink money box and a birthday card each year from the age of five.

Irish Permanent also offers tailored packages - the Billie Beanstalk account for those under eight years of age and the Saving Scene account from then until the age of 13. The former enrolls account holders in the Billie Beanstalk club issuing birthday cards, educational wall charts and savings boxes. In Saving Scene, customers receive a £5 book token when the account is opened and are set saving targets with the offer of reward.

What the accounts share is a minimum opening balance of £10 and interest rates ranging from 1.5 per cent on deposits under £2,999 to 2.4 per cent over £5,000. On top of that, there is an interest bonus of 1 per cent for accounts which have less than two withdrawals a year.

EBS Building Society uses the same demand account as for adults - offering a 1.75 per cent interest rate on minimum deposits of £1 - but enrolls youngsters in the Magic Murty club where they receive birthday cards, magic books and growth charts.

One of the most readily identifiable children's schemes is Ulster Bank's Henry or Holly Hippo's Super Savers Account. Again, the incentives include a free money box and a colourful cover to hold a credit book, membership card and transaction register on opening the account. Down the line, members receive an annual comic and a wall poster calendar. Rates of interest range from 0.25 per cent to 1.25 per cent depending on the balance in the account.

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