Ditch your Dollarmites account

There are better ways for kids to save and learn.

Andy Kollmorgen @andykollmorgen

Uta Mihm @umihm

Last updated: 10 March 2020

Need to know

Commonwealth Bank's Dollarmites program is a marketing ploy aimed at making kids lifelong customers
We gave Dollarmites a 2018 Shonky for some very shonky practices
Teaching kids to save money is a good thing – we point you to some better options than Dollarmites for learning financial literacy

UPDATE 25/10/21: Commonwealth Bank drops Dollarmites program

Kids can learn an important financial lesson from Commonwealth Bank's Dollarmites program – don't trust the banks, especially the big ones.

We handed Dollarmites a 2018 Shonky Award for good reason.

Masquerading as a program aimed at improving financial literacy for kids, Dollarmites has always been a marketing ploy aimed at locking in customers from the earliest possible age.

And you can see why the Commonwealth Bank (CBA) does it.

There is no evidence that having a bank account from an early age improves financial literacy

In a 2017 CHOICE survey, 84% of respondents said they got their first account with a big four bank (46% with CBA), and a third of them still had the account.

There is no evidence, by the way, that having a bank account from an early age improves financial literacy.

But with Dollarmites, the barrier to entry is virtually non-existent.

A youngster can open an account at any age as long as they're under 18, though they'll need parental approval if they're 13 or younger (presumably this applies especially to newborn babies).

If you're 14 or older, you can apply all by yourself!

Kids' dollars add up for CBA

Dollarmites is big business at CBA: the 92-year-old program is currently worth about $9.9 billion to the bank and had around 346,000 participants when we gave it a Shonky.

At the time, schools received a $200 commission when the first Dollarmites student customer was signed up, plus ongoing benefits depending on the number of students and the number of deposits each class member made.

Then, as now, children are promised "a range of fun, engaging materials to help them learn and encourage them to save", including banking wallets, smartphone apps and crossword puzzles (featuring your favourite banking words).

These and other promotional items are branded in the signature Commonwealth Bank yellow.

There might be better options for kids than saving their coins at home – but a Dollarmites account isn't one of them.

When we investigated the program in the lead-up to the 2018 Shonky Awards, some of this "education material" turned out to be CBA credit card marketing material.

Bonuses were on offer for bank employees at the time. It emerged that thousands of CBA staff had fraudulently manipulated Dollarmites youth accounts for personal gain.

All of which is why we recommend that kids ditch their Dollarmites account and shop around.

We also call on the banking industry to get their marketing machines out of Australian schools, and we're not the only ones.

As reported by the ABC earlier last year, the Australian Education Union has gone on record to make the same demand.

"There's no place for private corporations to go into schools and try and trap children into banking with them for the long-term future," AEU president Correna Haythorpe told the ABC.

What to look for in a child's bank account

We're not saying kids shouldn't learn to save money and have a bank account to park it in.

They may even earn a little interest – probably very little, but something is always better than nothing.

Dollarmites pays a paltry standard rate of 0.1%, though you can earn bonus interest if you make a deposit at least once a month and don't take any money out, ever.

When looking for a new bank account for kids, make sure it meets the following criteria (this goes for adult accounts, too):

No monthly fees with no conditions attached (e.g. a minimum monthly deposit or balance).
Unlimited, unconditional and free own-bank ATM and EFTPOS transactions.
A range of other unlimited transactions at no cost, including direct debit or credit, phone and internet banking, BPAY and over-the-counter service if applicable.
Transaction accounts should be linkable to a savings account with a reasonable interest rate.

If you want to shop around for the kids' account that pays the best interest or charges the lowest fees, keep the following advice in mind.

Interest rates

Kids' accounts generally offer reasonable interest rates. But to get more interest than the base rate, young savers need to contribute regularly – usually at least monthly. They also need to be disciplined; if money is withdrawn during the month, the interest rate will usually drop.

Use the system

Tricky rules give kids an opportunity to use the system to their advantage, and that's a lifelong skill. To manage their money, they should try to:

divide their savings between a higher-interest savings account and a transaction account
make regular monthly deposits into the high-interest account, and no withdrawals
keep a smaller amount of money in the transaction account for cash on demand.

Many banks also offer fee-free kids' versions of their normal transaction accounts. The downside of this type of account is they usually pay little or no interest.

Watch out for sneaky fees

Banks generally won't charge kids account-keeping fees, but other fees can apply. Withdrawal fees Kids' accounts may only offer one free withdrawal per month, and then charge fees especially for over-the-counter withdrawals.

Coin-counting fees Banks may also penalise kids for dumping a pile of coins on the counter. While most institutions exempt them from a flat or percentage-based coin-counting fee, some will take a cut.

New account fees and conditions Once your child hits an age-limit – usually 12 – their account might automatically convert to an adult account. Make sure the new account is fee-free, and check the interest rate and conditions.

Tax rates and rules

Government generosity for young savers is pretty limited. Since 1 July 2011, the low-income tax offset no longer applies to interest earned on kids' accounts. To discourage parents from putting money into accounts under their child's name, taxes apply if they earn more than $416 in interest:

Interest between $416 and $1307 is taxed at 66%.
If interest amounts to more than $1307, the whole amount is taxed at 45%.
Your child will need to lodge a tax return for any interest income over $416.
Exemptions apply for children under 18 who work full-time and those with certain disabilities. Other rules apply for kids who work part-time or non-residents.

Accounts for teenagers

Older kids would do well to graduate to an online savings account. Some high-interest online accounts are available for this age group.

You can also open a regular adult account for this age group. Check out our article on high-interest savings accounts for more tips.

ASIC's free Moneysmart website also has some good tips on how to cultivate financial literacy in Australia's schools (letting the banks market to kids is not one of them).

Once you've found a better account, switch.

Join our campaign to get banks out of schools

For the first time ever, ASIC is currently reviewing school marketing schemes.

We hope you agree that banks have no place in Australian schools.

Join our campaign to fix school banking.

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