Teaching children about the value of money is important, and starting them off with a savings account is a good way to teach them about interest. When they begin working or getting regular pocket money then a current account is the next step.
Most banks have specific current accounts in a simplified version for young people who are just beginning their financial lives. They will restrict services like internet banking, debit cards and overdrafts until a certain age, but young people’s bank accounts can also come with special discounts and helpful financial learning tools.
We have also explained how borrowing and saving works for young people, see more here.
Young people’s accounts
Most people need a basic account for money coming in and money going out. These accounts are good for day-to-day banking activities, and can be offered in the bank branches, over the phone, online and by post. You can show your child how to check their bank balance, review transactions, transfer money between accounts (if they already have a savings account), pay bills and set up automati standing orders for regular payments.
We’ve listed a whole range of youth accounts and what you can get with them, but Moneyfacts has got the top three not on the high street that give your children the best return for their money.
The great thing about internet banking is that you can have two accounts and link them which allow you to easily transfer money into your savings account and profit from the interest you can gain with savings accounts so long as you don’t spend that money!
You can save money with current accounts, but savings accounts are better because they offer a higher amount of interest to gain, and often because they are separate to your ‘spending’ money account, you are more likely to leave the money there and let it grow on its own by putting a small percentage of your pocket money or wage in each week.
There are many different savings accounts available with each bank, and they often require a minimum deposit to open the account.
If you plan on not touching your savings, but you might need them for something soon, then stick your money in the AA internet extra account paying 1.8% AER. However, minimum opening balance £1,000 but you can get at your savings if you want to.
Borrowing money WITH AN OVERDRAFT
Your account may have an overdraft which will let you take extra money out of your account. Say you have £6 left and you use your card in a store to pay for £10 worth of products. Your account will go into a negative amount (-£4) and you will have an interest free period in which you can pay that money back. If you go over the overdraft amount or past the interest free period then you will incur bank charges.
You also want to have some control over borrowing money. You are offered low-limit credit cards with some young people’s and student accounts but that doesn’t mean you have to take one. Credit cards can be expensive when you don’t pay them off. They are cards with a set limit that you can spend now and pay later. You are sent a monthly bill requiring you to clear or pay off a minimum payment for the account. People start getting into trouble when they cannot pay their card off because they have borrowed too much. This is where you need to be in control of your finances.
N.B. Because you are a young person or student with no assets you are not likely to have a very good credit record, so banks will not give you a card with a high limit. If you have been able to prove that you can pay off regular payments such as monthly phone bills, your credit report may be higher. It’s a good idea to check just in case.
Prepaid credit cards
If you do need a credit card for buying things online and in shops, pre-paid cards are a great alternative. They are like buying phone credit – you put money on the card and once the credit has reached zero, you’re unable to use the card. There are many different types and you can choose them according to what is more important. Would you rather have monthly charges or charges when you top-up the card? It’s a matter of finding out what suits you best.
It’s better not to get yourself involved with loans at such a young age. Borrowing from the bank of mum and dad is also a no-no. Work hard, save your money and invest it. Read here about the slippery slope of borrowing. We’ll tell you how, but make sure you make a budget to ensure you can pay the money back without having to pay huge amounts of interest or getting yourself into major debt.