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Thursday, March 15, 2018



Choosing The Right Savings Account For Your Children - Part 2


This is part 2 of a guest post by Joanne Lee who also wrote the very popular post on The Importance of Penmanship in SJKC. The post below was written due to her own research on what 10 different banks have to offer in terms of savings accounts for children. Thank you, Joanne for your time in doing this research and putting it down in writing to share with all of us on the Malaysia Primary School Parents On Facebook.



If you haven’t read Part 1 where we compared interest rates of 13 different junior savings accounts, do check that one out first before continuing with this post. Go ahead, we’ll wait.

Back for Part 2 already? Let’s dive in.

What you need to know: Dormant accounts are bad for business!

It is important that you do not let your junior savings accounts go dormant. Going dormant means going through 12 months of no transactions (deposits or withdrawals) at all.

Most banks will make an attempt to send mail to your registered mailing address or to call you and inform you about this before it happens, provided you keep your contact details updated.

Once a bank account goes dormant, the money will still be in there, but banks will start charging a RM10 service fee for keeping your money with them.

This is chargeable annually, which means for every year your account is dormant, not only do you not reap any interest, you also get RM10.60 (GST 6%) deducted from your account (per year).

They will do this for 7 years before they send the remaining money to Bank Negara. You can still claim that money back but the bank will be of no part of the process -- even though, they had already taken RM74.20 (RM10.60 x 7) out of it first.

To reactivate your account, just bring your passbook and identification documents to your bank and ask for the account to be reactivated. There will be a penalty fee of RM10, but at least your account will be gathering interest instead of making losses from there on.

Apart from withdrawal fees and dormant account fees, there is another fee you should be aware of. If you have just recently opened a bank account and decided you want to switch your savings to another account, hold your horses because there are early closure fees.

These range between 3 months to 6 months, dependent on the bank. The fees will be no more than RM20, plus the RM1.20 GST. Before you make any move, wait out the stipulated period to avoid paying these fees.

Table 3 Early Closure fees and Dormant fees


Early Closure fees and Dormant fees




What you should know: Don’t ignore the game changers

You can call these gimmicks if you like but if it is there in black and white, you can always lay claim on these benefits if the chance pops up.

There are monetary rewards for the studious (requires a minimum balance in the account maintained in the year leading up to the submission, personal accident coverage (which is dependent on your balance, and always has a maximum amount you can claim), a point scoring system for redeeming goods, etc.

If you want to provide your teenager with some financial freedom, some of these products come with ATM cards, easy-to-reload debit cards, an online monitoring system so parents can track their kid’s spending, or a spending limit if teens prefer to have some privacy with their spending habits, and other features that can help you teach your kids financial literacy.

Table 4 Other offerings by the same junior savings products

Other offerings by the same junior savings products


What you should know: Don’t overlook FD as an alternative.

This particular section is for those who want to save for the long term and have no plans to withdraw money from their children’s savings. In this case, it is possible that a fixed deposit is a better option for your savings, compared to a junior savings account that comes with a lot of strings.

But before that...

Understanding Fixed Deposits


As the defining thing about Fixed Deposits is that they are fixed, once you put in the money, you can’t remove it until the end of the period you signed up for.

These periods could range from 1 month all the way to 12 months (1 year) and even up to 60 months (5 years). If you take it out before the FD matures (reach the end of the period or tenure), you forfeit the interest, either fully or by half, depending on the bank’s TnC.

As for the interest, you have the option to reinvest the interest or to shift it into a savings account where you can withdraw it for use.

For 1-month FD, most banks require at least RM5000 as an initial deposit. If you go for 2 months or more, this can drop to RM1000 or RM500. 

Alright, with that out of the way, let’s take a look at which banks offer better FD rates than their junior savings. 

Notes:
  1. For easier comparison, I’m picking the basic FD product instead of listing all the different products banks are offering now (for working adults, for elderly etc) 
  2. For brevity, I will be listing 1 month rates, 12 month rates and 60 month rates. 
  3. To know the exact rate for tenures apart from these three, please check at the bank or their websites.
  4. A lot of the withdrawal options are gleaned from the Terms and Conditions attached to the products.

Table 5 FD rates vs Junior Savings rates

FD rates vs Junior Savings rates


**Withdrawal notes: 
  1. For 1-month, 2-months and 3-months FD, withdrawal before maturity automatically forfeits the interest.
  2. For tenures longer than 3 months, any withdrawal before the first 3 months is up also forfeits the interest.
  3. For longer tenures (for some banks 6 months, other banks 12 months), premature withdrawal will incur a loss of half the FD rate. This means you only get half of the FD rate x completed months.

Lastly, keep an eye out for promotional FD rates around Chinese New Year. Some banks offer rates of more than 4% e.g. HLB had a recent promotional 4.35% rate, while OCBC offers a 4.38% rate and Ambank offered a 4.03%. If you missed it this year, keep an eye out for it next year.

Note that these promotions require a higher deposit amount, usually RM10,000 as well as a 12-month FD commitment (although some can go for as short as 8 months only, check out Ambank for deals like this).

Conclusion

Phew, so there you have it. We hope this post will make it easier for you to make decisions and more importantly, it will open your eyes to how these bank products function. If you are in any doubt, please do not hesitate to speak to your banks before, not after, you sign up for any bank products.

If you want to look at a table that has all the information above grouped together, follow this link.

It has been suggested to me that I cover other investment options (unit trust, REITs, insurance, educational bonds) outside of junior savings. Whether this article will happen or not depends on your response to this post. Do let us know either way.

Final note: I’d like to thank Peachie Berry, KJB and other parents for their help in this article.

Disclaimers:
  1. The information above is not exhaustive. 
  2. Information inside may be changed down the road by the banks and their changes may not be reflected on this article. There is however an easy remedy to this -- ask your bank for details and confirmation before you sign up for anything.
  3. I am not trained financially or in legal speak. My interpretations of the terms and conditions as well as the information portrayed on the bank websites are only to the best of my abilities as a layperson. In my defence, the terms should be written with us, the laypersons, in mind.

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