Today I opened a savings account for my 2 1/2 year old daughter at our credit union. The savings account only pays 1% right now. This is really low compared with online savings accounts, but is above the national average for brick-and-mortar institutions.
I thought about this after leaving the bank, but it didn't really bother me. The 1% rate is low, and yes she could earn more, but there are more important things I want to teach my daughter as she grows up. In the same way that swiping credit cards and debit cards don't seem quite as real as paying cash, showing my daughter the ACH transfer notification of her birthday checks isn't nearly as real as having her go to the bank and present the check to the teller, maybe hold the cash, and decide (probably with input from me or her mother) what to do with it. Seeing, feeling, and touching is believing, and I want her to see, feel, and touch thrift so that she believes it. Granted, my daughter will probably have a level of computer literacy as a teenager far beyond what I had, but doing things old school isn't bad.
Seeing the lobby of the credit union might eventually prompt other questions, like “why do people get 4% interest if they have lots of money in their account?” or “why are loan rates higher than the savings account rates?” I might even take her to a board meeting of the credit union (I think I can do that) so that she could see how the other end of the credit union works. It's enlightening.
And if she sees that she can earn a lot more online, then I'll be happy to set up an account for her there! She'll understand then.
Here's the account where I have a good chunk of savings: The Orange Savings Account. Great rates, no fees, no minimums.
Couldn't you open her a second savings account at an online bank so that she could earn the extra interest? That way you'll have both a brick and mortar and an additional account with good interest.
I'm with Dennis. There must be a way to teach the lessons you want to teach AND get a better interest rate.
I think that's a great way to teach your daughter. When she gets enough money, you can link it to an on-line acct and transfer most of it there to earn better interest – but still leave enough in her B&M bank to keep getting the in-person benefits as well. Great idea.
I've had no complaints with HSBC. I just wish their psuedo-checking account actually gave checks. I never used a lot of checked, but I've found that when I need one, they are invaluable.
I could earn another 4% or so. Right now this would be a whopping 40 cents per year more interest. Once she understands the purpose of a brick-and-mortar, I'll introduce her to the online account.
I think "Savings for Success" at WaMu is perfect for kids. Minimum $1 and max $500. Flat 7% return.
http://bankdeals.blogspot.com/2007/07/wamus-new-7…