Teaching your child to save money by putting it in a savings account is worse than ........ I can't think of anything worse at the moment. Here are the reasons that I think it is a really bad idea. You are teaching your child exactly what big corporations want you to tell your child. Big corporations need your cheap money! They make millions out of your (and millions of others like you) monthly deposits.
The reason that they can make so much out of your false perceptions is that you don't know a simple financial or mathematical calculation. Don't get scared, there will be no grade 10 maths applied here.
Ok, let me explain how it works;
Large corporations (the banks etc) promises you a certain amount of interest on your deposit(s), let's say 5%. So on $1000.00 you will have $1050 at the end of the year, because interest is accrued and calculated on a yearly basis. Seriously, $50 a year profit with $1000?
Now, here is something that you can calculate yourself, for each deposit you make, what is the transaction fee? You have to deducted that from your interest as well. So the more deposits you make the more banking fee's you will pay and the less you will make at the end of the year!!!!
It does not stop there, sorry. There is another thing that you have to take into consideration. Inflation rate. The inflation rate is never really advertised on consumer level since that is a bad thing concerning savings and pensions fund payouts.
NOTE: Savings interest can never be more than inflation rate!
That leaves a bit of a conundrum does it not. You earn 5% interest per year but the inflation rate is at least 8%.
Inflation rate is the rate at which your money loses value in one year. So, you earn 5% per year but in reality you also lose 8% per year, that does not take into consideration of the banking fee's that were deducted!!! Your nett loss at the end of the year is more than 3% !!! You end up with $970.00!!! In effect, you are paying the bank each year to make money. It is sick, do you understand it now.
To bring profit or ROI (return on investment) into perspective. Large corporations promise you a ROI of 5% on your investment. Now here is the secret, do you know that many retail companies have a nett ROI of at least 20% (after TAX and depreciation, which is basically inflation). So you can see that you should at least earn 3 x 5% to increase your investment over time.
But this is not all.
Banks take your money and they trade with it on the Forex markets. This is the scary part. Since the banks manipulate the Forex markets, their profits are huge. Ok, losses can also be significant, but at the end of the day they make more than just 5%, they make at least 1% per day!
Banks make up to 1% profit per day on Forex trading with your savings money
So the next time you want to fund banks, open up a savings account. But just remember, there are many other ways to keep you money safe and let it grow.