Saving money for kids made easy (NOT) by banks
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Last week, I closed a no-maintenance-fee account because I was charged a hefty you-haven’t-deposited-any-money-lately fee a/k/a dormant account fee. I offered to make a deposit in exchange for a fee waiver; no way was the response. I closed the account. Reading the business section a few days later, I learned that this bank finally reported higher earnings primarily due to…increases in fee income.
Okay, I had opened the account (a minor savings account) for my oldest child but because I ending up doing little other business with this particular bank and am a busy mom (like all are), I rarely had the chance to stop by and add to his account though I really, really planned to. On my 2007 to-do’s list were 1) open an account for little brother, 2) add regularly to both accounts and 3) teach them both about banking. The lesson, this year, was for me.
My experience brought back memories, though not necessarily good ones. When I was a financial analyst for a regional bank in the 80s, branch managers were penalized for waiving fees even if the customer was an otherwise profitable one. The fees for commercial accounts, in particular, involved convoluted calculations that always generated charges no matter the enormity of the deposit size or rarity of transactions. A rigged game, it was and still is.
Two can play at the bank-fees game, though, especially if there is a willing financial institution that is not so stuck on fleecing its customers. My personal accounts are going to be landing where I have my business account: the neighborhood savings & loan.
The kind folks at the S&L have allowed me to open a checking account for my business that is, fee-wise, a personal account. As long as I keep a reasonable balance ($600, which earns interest) and my transactions aren’t excessive (and they haven’t been in 10 years), there are no fees for transactions, maintenance, or anything else. As a bonus, each office is staffed adequately so that I don’t have to wait in a slow-moving line while teller A goes to lunch just as the workload rises while teller B tries to settle down yet-another-unhappy patron.
The S&L crisis of the 80s may scare some away but, interestingly, a check of safety using Bankrate.com’s Safe and Sound ranking system rates my savings & loan as a “1†(superior, its best rating) while the bank with the dormant fee charges ranks as a “3†(performing).
Bank charges are as nearly assured as death and taxes but I am still working diligently to avoid them. Meanwhile, my kids' savings in ETFs with an online broker continue to grow.
Tagged: Personal Finance, bank account, bank fees, dormant account fees, savings account, savings and loan
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I setup an account in a fresh quick file for each kid.
They get thier allowance as salary deposited every week. When they want cash, I take it out of my wallet, and record a withdrawl from the Dad Bank.
Pay 1% per month. They evey want to give me thier change to deposit.
Works great, never have to go to the bank with them.
If they want a big purchase, I put it on my credit card and then do a withdrawl from the family bank.
For some reason I wanted to give my kids the brick and mortar approach, show them how to talk to bankers, how to hand over money, receive a deposit confirmation, etc. But now I am wondering if a virtual (or mom-bank) approach would be better and just as good preparation for the future.
My children's accounts are never assessed a "dormant account fee" and I only transact roughly twice a year on each account.
If I were to do the same on my own accounts, the fee would be assessed.
Moral of the story: Shop around.
As an aside, credit unions usually have lower loan interest rates too. :) BONUS! They hold my mortgage and auto loans and will most likely end up with the kids' student loans as well.
I have not been eligible to become a credit union until just recently (by virtue of my county of residence). The savings rate, though minimal, are higher at the S&L than the credit union near me but still worth looking into.
It's sad to see how far we've gone in one generation.
When I was a kid, there was banking available as a co-op effort from the city schools and the city bank. Envelopes were given and kids were encouraged to save by bringing the envelope w/ a portion of their allowance, earnings, whatever into school and the money made its way to the bank.
Over time, all the banks have become so big, they have no need for the work it takes to develop good customers in this manner. They can make more money off the credit floated around- creating indentured servants to credit rather than good, solid, financially responsible consumers.
I like the approach of encouraging savers and making it convenient (which was my problem). Oddly, this bank is a small one (tag line: small enough to care), which is trying to cultivate relationships with kids through school programs. And now that you mention it, there was a bank at one of my elementary schools (went to 3 because of busing).
to open our future child a savings account. We didn't like what any of them had to offer. As a child 20+ years ago, I used to delight in watching the pages in my passbook fill up with interest deposits that had accrued between my meager deposits and withdrawals. 10 cents, 18 cents, 32 cents. I don't think I ever had more than $60 in at one time before I hit my teens.
Nowadays, I have $400 in my Christmas savings account at my credit union, where I earned all of a dollar ten in interest in 2006. We were Frustrated to the point where we simply put money in her little red piggybank. At least then we didn't have to pay for the gas to deposit every $5 to make 0.002% interest!
2 years ago we were referred to a high yield online bank. I don't think I've been this excited since I was a kid. We're really earning interest now... more interest than we're paying on our truck loan (with the credit union). Saving is finally worth it again! So I'm teaching my 3 year old online banking. At this point, that's mostly what we do anyhow... after snotty tellers, long lines where my little one whines and squirms, and the gas money it took to cross town JUST to throw $30 in there, most of the time, brick and mortar isn't worth it. I mainly use them for coin rolls and garage sale change now!
It's important to know what goal you are trying to accomplish with kids and saving/banking.
From my perspective, if your goal is to teach the habit of saving and handling money, using a bank for a child's savings account probably is not as good as setting up your own "bank" for him or her and paying an interest rate that amounts to something tangible to him or her. For a very young child, it could be paid in actual quarters (say, one quarter per two dollars) a month, on the first of the month, right in their hands, and for older kids who can deal with abstracted numbers, you could use 1% a month, just like one of the posters above suggested.)
Later on, after the habit of saving and the understanding of the concept of interest is ingrained, say in their teens, you can switch back to using real-world rates for them.
As to the "ritual of banking" and getting used to a "real" financial institution,--well, I think they can learn that in their late teens.
Andrew Tobias has a couple really great money teaching games around compound interest that are worth checking out in his book about personal finance--I think it's called The Only Investment Book You'll Ever Need. Also, there's a quite good book called The First National Book of Dad for those who are interested in a longer treatment of how one parent designed a savings/banking system for the purpose of educating his kids about it.