What’s wrong with bank accounts for your kids? Sorry, this one doesn’t seem to fit with your other examples.

If all you're doing with a bunch of cash over 18 years (!) is holding it in a bank account to collect interest, you're just losing money to inflation. Bank interest is almost nothing. Better to hold stocks, or at the very least bonds if you're extremely risk-averse.

Though this needs to be put in context - maybe you actually intend for the child to be permitted to spend the cash, in which case a bank account makes plenty of sense.

As the OP has "Aussie" in their name I think they'd be referring to the Commonwealth Bank of Australia Dollarmites accounts. They were shutdown recently after a watchdog investigation. It was locking kids into using the bank that would continue into adulthood and schools were getting paid to sign kids up.

https://www.morningstar.com.au/personal-finance/the-lessons-...

"They found that it provided little value for children and the largest outcome was that children were being exposed to ‘sophisticated’ marketing tactics."

The banks might pay 3% interest, whereas even non-volatile conservative investments like cap notes or bonds would pay something like 7%.

Plugging it into a calculator:

1.03 ^ 18 = 1.70

1.07 ^ 18 = 3.37

Example numbers, but you're effectively taking half of the money that your kid would have had on their 18th birthday, and giving it to a banker.

From a return on investment perspective, it is not great.

Bank accounts are convenient and safe, but you pay the price with low interest rates. But if you don't intend to touch that money for 18 years, you don't need the ability to withdraw at any time without losing money that a bank account offers, so why pay the price for it?

However, it has symbolic and educative value, teaches the value of saving, how interest works without going into the complexities of the financial system, and making it clear to your kids that it is their money, even if they can't touch it yet. So it may be a good thing for that reason, when the sums are reasonable.

You should invest in different things depending on your age.

An old person might want to have more of their money in yielding assets. They are withdrawing from the account so the certainty of having predictable value might outweigh the inflation risk.

Savings intended for a young child should be allocated almost entirely into equities. They are not affected by drawdowns since they won't be withdrawing from the account for a decade or two, but inflation is a primary concern.

A bank account is a particularly bad place to put savings intended for a child long-term. A good high yielding account might barely keep pace with inflation, but it's unlikely to grow much in real terms. The average bank account will lose money in real terms in that 10-20 years.

Bank account interest is pretty much always less than inflation. So, money sitting in a bank account for 18 years is just losing value.

Inflation over a long time horizon is about 3%. Especially if it's going to be a decade or more, just put it in an index fund.

Not OP, but I think they are referring to the fact that you can get tax advantaged accounts instead of a standard savings account. Not to mention the interest rate on those accounts is basically a rounding error.

The interest rate is very low.

My checking account isn’t the best out there at 1%. Same with my savings account at 3.4%.

Neither of those is anywhere near inflation. You are effectively losing money by parking it there.

Most checking accounts don’t pay interest at all. I looked up Bank of America's savings account: 0.04%.

You read that right. Effectively zero. And it’s a flat rate. Whether you have $10 or $10 million in there.