Client Question

Should I apply for a Westpac baby bump account?

$200 is not enough to sit money in a savings account for 16 years.

In our “client questions” section we answer questions sent to us by our clients.  All information in the following answer is general information only and does not constitute product recommendations or personal advice.


$200 for free is a nice push bike when the kids turn 16, but this assumes a few things:
1.    The interest rate on the account keeps up with inflation.
2.    Westpac never charges any fees on the account even if you do not deposit a cent.
Both of these things are possible – but Westpac are only going to release the interest rate and fees on the account in April (and they could possibly change them in the future).
But the sale point on this account, and perhaps what you are thinking, is that this is an account that you can put money aside for your kids’ education, first car or marriage.  “$20 a week will give you (or your child) $19,000 in 16 years”.  This $19,000 is made up of your contributions of $16,640, Westpac's bonus of $200 and interest of $2,160 (of which you could lose a percentage in tax).
Sure this is better than not saving anything – and if it helps on an emotional/discipline level to have a specific account designated for kids-related goals then perhaps it is a good idea.  However on a pure dollars and cents point of view, most people will have better options, particularly if you have a home loan (or will have one in the next 16 years).
Savings for your kids in your Mortgage Offset Account

Let's say you have a home loan for the next 16 years to make things simple (although everyone should be planning on paying off their home loan quicker than 16 years).  If you add $20 a week to your offset account you will have $16,640 in the offset account but a home loan $7,000 smaller because of the interest that you have saved.  You can track this in a spreadsheet (that I can send you on request) and you can have $25,000 to spend rather than $19,000 that you might have saved in the example above.  Another advantage is paying $7,000 less in interest is not taxable income like interest earned in a savings account.
Other options might be to utilise your superannuation or investments that are likely to achieve a rate of return above inflation over a 16 year period.
But as with everything the right move will depend on your unique situation and goals.
If you would like to know the best way you can save for your kids, then book a free strategy session with a financial planner.


Article by Matt Boxer - GPA Financial Planning

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