Kids savings accounts

[Aussie]

A family member of mine, just had a new baby with his wife.  They both have reasonable jobs, a house and a mortgage.  We have a very large generous family, and so far the baby has gotten over a few thousand dollars in gifts.  This will probably happen again at birthdays and holidays.  His parents want to start a savings account for the kid and put all the money in there.  I think this is great for teaching the kid financial responsibility.  My only concern is that the yield is much less than their mortgage rate.  They are planning to be very generous with their child throughout his life, so I think it is totally fine to put the money into their mortgage and then give the kid the money with very generous interest around age 12, when they can actually appreciate it.

Does anyone else have opinions on this?  I personally dislike having separate accounts for different reasons (i.e. this is our college account, wedding savings etc) unless their are specific tax benefits, but some people find them useful.

[marty998]

Not sure if Bankwest is still doing the 10% deal, but 6% they're paying on this one is pretty good.

http://www.bankwest.com.au/personal/savings-term-deposits/savings-accounts-term-deposits/kids-bonus-saver

Be careful of tax rates for kids. They can earn about $400 in interest before you get hit with 46.5% tax rates (or more). Basically the rates are punitive to stop people putting money in their kids names to save on tax.

My suggestion is that the best option is your mortgage/offset account. Tax free, and without the hassle of an extra bank account.

[gooki]

To put it simply, they see it as a gift to the child and want to keep it separate to respect the people who gifted them the money. My wife has the same mentality.

[twinge]

What about a 529 plan for college so it can be invested in faster growing assets.  I think a lot of people who give cash to an infant/toddler assume it's for their college or some larger investment in their future. 

[homeymomma]

I agree with other posters about it being earmarked for the baby. We have a one year old, and any gifts for her are HERS.  Spending it on anything else, even if it's something that would help the family as a whole would feel like stealing from her. The people who give her that money are trusting us to be stewards of it and put it to the best use for her future.

[MrsPete]

I'm with those who say that money was given to the baby.  Yes, the parents could spend it on their mortgage or something else, but that doesn't feel right to me.  In fact, most people who gave my kids monetary gifts specifically said, "This is to jump start their education accounts". 

We put aside all the money our kids received when they were born, for birthdays when they were too small to even know, etc. and saved it for their college educations.  We have one in college now, and we've opted to leave that money in their accounts for the one year that they'll BOTH be in school at the same time.  We figure that year'll be the toughest to pay, and we'll all appreciate the help at that point.