Free banking for children – is this possible?

“Free – has there ever been a sweeter word…” is the opening sentence to Absa’s new advert promoting its Mega U account aimed at under 19s.

When a bank, like Absa, says something is ‘free’ is everything to do with that product really free?

Since 2014, Angelique Ruzicka, editor of Moneybags, has been scrutinising the terms and conditions associated with children’s bank accounts and kept track of the charges on the typical transactions a child would make, such as withdrawals, deposits, balance enquiries and so forth. She has also studied the amount of interest given to balances on such accounts. Here, she delves deeper into the meaning of ‘free’.

Last year we called on banks to ditch the fees and wrote a letter to the Minister of Finance. This year we still find that, for the most part, banks charge children to transact, particularly if they want to interact with their tellers at the branch. It’s expensive and can eat into what little savings (most) South African children have. But there are still things you can do to reduce the cost of banking. Here, Moneybags provides you with 10 smart ways to avoid high fees.

Why are we more positive this year?

Moneybags has campaigned for fees on children’s bank accounts to be dropped – not because we don’t want children to learn about the consequences of transacting through banks – because we think it’s only fair that children should not be burdened with bank fees as they are not earning a proper income (except for the pocket money they get from parents).

In 2014 and 2015 not much had changed in the way of fee structures but this year there appears to be a shift toward free banking for children and it looks like Moneybags had a role to play in this.

“Almost a year ago, you mentioned on social media that you sent a letter to National Treasury and also wrote an article on the Moneybags site calling on Absa, Standard Bank, Nedbank and FNB to do away with fees and charges associated with basic child transactional accounts. Absa continually monitors the operating environment as well as our customers’ needs to ensure that our propositions remain relevant and truly allow our customers to prosper.

“We believe that financial education, responsible spending and good saving habits can never start too early. The importance of teaching children about the value of money and the management thereof is invaluable to them. To this end, we have reviewed and adjusted our youth proposition not only from a pricing perspective, but also from a true value perspective.

The youth market can now enjoy a zero monthly service fee with a range of banking transactions offered for free with the Absa MegaU account,” says Liezl Squires a spokesperson for Absa in an email to Moneybags.

While we are glad to have influenced one bank there is still a way to go. While Absa has gone to great lengths to rid fees of the most basic transactions that a child would pay with their Mega U account it just falls short of being able to say that everything is free when it comes to the transactions that we’ve compared over the years.

If your child gets a whack of money for his or her birthday and wants to deposit it through an ATM or over the counter – be aware that Absa could charge.

With ATM deposits at Absa the first R500 garners no charge, but thereafter R1.30 per R100 is charged. If, for example, your child deposits any amount over R500 at a branch Absa charges R8 + R1.50 per R100.

“The cost of cash is a major cost item for any bank and there is a direct correlation between the increase in the transaction value and the cost of cash,” says Jan Moganwa, CE: Customer Solutions: Absa Retail and Business Banking.

But that’s still infinitely better than what its competitors charge for over the counter banking. FNB is the worst when it comes to depositing money over the counter with its Youth Account. It charges a minimum of R60 for depositing money. So if little Thembi deposits R100, she’ll be left with a paltry R40 if she does it over the counter.

Nedbank also offers leeway with the first R500 being deposited over the counter garnering no charge. Thereafter it charges R10, plus R1.32 per R100 or part thereof. Meanwhile, Standard Bank charges R11 plus 1.30% of any deposit value.

If you’re willing to bank outside of the Big Four, there’s Bidvest Bank to consider, which is free on everything we’ve compared in the table below, except if your child wants to get a balance enquiry at the bank’s ATM – which would cost R3.

“The reason [for the charge],” explains Jovi Chen, head of transactional banking products at The Bidvest Bank, “is that we see Youth as a tech savvy generation and we would like to encourage them to rather use our digital channel, which offers a better customer experience that talks to their digital behaviour.”

Still paying for the basics

Unfortunately, FNB, Standard Bank and Nedbank still charge for the basics. In some instances, initial transactions are free. So, for example, FNB’s Youth Account and Nedbank’s 4me Account offer four free cash withdrawals (own bank ATM) per month. With Standard Bank the first eight electronic debit transactions per month (excluding debit orders) are free. For nine or more transactions, Standard Bank charges R25.

Children have to watch the number of times they withdraw money too. Standard Bank, for example, charges R4 + 1.20% of the withdrawal amount if your child withdraws from Standard Bank’s own ATM. It’s best that children withdraw money at tillpoints because most of the banks don’t charge for this.

Cash deposits are not always free either. With Nedbank the first R500 deposited through the bank’s own ATM is free but if your child wants to put in more they pay R10 plus R1.32 per R100 for the privilege. Meanwhile, FNB currently charges R0.80 per R100 for cash deposits through their own ATMs with a minimum fee of R5.50 (no minimum will apply from 1 July 2016, however).

The good news is that monthly account fees do not apply to accounts with Absa, Nedbank, Standard Bank and Bidvest. Only FNB still charges a monthly account fee of R24.50 or R6.25 depending on which type of Youth Account you apply for. However, FNB are seeing the sense to scrap this fee from 1 July when it typically changes its fee structures.

Very little interest

Sadly, interest earned on these child bank accounts is not very high. In all the years we’ve done this comparison, Nedbank has always offered the most interest and this year it doesn’t disappoint with 3%. While Absa boasts about the lack of fees it only offers a paltry 0.15% but that’s at least better than its competitor, Standard Bank, which offers nothing.

I believe that FNB and Bidvest should rethink their interest rate tiers. While it rewards savers if they save more, it doesn’t offer much in the way of incentives for those little ones who can’t save a lot of money.

If a child with FNB has any amount below R100 in his or her account they get no interest. Interest of 1.40% kicks in on balances over R100 but a child would only earn a healthier 2.95% on balances over R100, 000.

Bidvest is slightly more generous than FNB. On balances between R50 and R10, 000 it offers 0.58%, while balances from R10, 000 till R25, 000 get 3.65%. A cool 4.75% gets awarded on balances over R250, 000 and upwards – but let’s be honest – how many South African children could possibly save up to that sum? Not many.

Final thoughts…

“But does free really mean free or is the idea of ‘free’ just being held hostage? …we can teach the young that they are free and grow free. That’s the world we believe in. And that’s the world we want to live in. So welcome to a world where free is truly free…,” concludes Absa in its advert.

For Moneybags, the changes Absa made with its transactional bank accounts aimed at children is a step in the right direction. What’s encouraging is that all the banks surveyed this year don’t charge a monthly account fee or, as in the case of FNB, are in the process of ditching it.

So can any bank currently claim that their child bank account is ‘free’. In my  opinion – that would be a ‘no’. There are still some common transactions that are not free and, unfortunately, the onus will rest on the parents to guide their children into banking smartly to avoid paying the highest fees.

While the banks say their fees are used as tool to dissuade children from transacting over the counter (which for the bank is more expensive as it has to hire a person to do the transaction), it’s sad that children can no longer see the ‘whites of someone’s eyes and the smiles on a person’s face’ as they triumphantly hand over money.

Banks are encouraging consumers to transact electronically as much as possible without the pleasure of a voice to guide them along the way. It appears that for now we must either accept this, or pay the price.

Moneybags child bank account comparison part 1

Moneybags child bank account comparison part 2

Sources: Absa, FNB, Nedbank, Standard Bank, The Bidvest Bank. Correct as of 15 June 2016. *The Nedbank account must have a minimum monthly balance of R20.
** With Standard Bank, the first eight electronic debit transactions per month (excluding debit orders) are free. Nine or more transactions are charged at R25.

Further reading: 

Banks should stop charging our kids
Don’t let your child’s bank account rip you off