Where to save for kids?

Parents need to think about what they are saving for before deciding where to save money for their children. Photo/Getty Images.

Parents should consider what they are saving for and how far away that goal is before deciding where to put money for their children, a bank expert says.

Jonathan Beale, general manager wealth at ASB Bank, said KiwiSaver had become a much less attractive place to sign children up for saving since the Government removed the $1000 sign up incentive.

But it still remained an option.

However Beale said there was absolutely no point in setting up a KiwiSaver account for kids unless people were going to make contributions to it

"You've got to be putting a regular amount in."

Beale said people also needed to be aware that the money which goes into KiwiSaver can only be taken out for buying a first home or retirement or unless the member is suffering from significant financial hardship.

An alternative to KiwiSaver is a similar product called a managed fund.

Like KiwiSaver it pools money together and invests it in shares, bonds and other assets.

Most of these funds have either a minimum level to open an account of around $2000 or a minimum contribution level of $100 per month.

The fees are also likely to be higher than KiwiSaver which has rigid controls around how much providers can charge and is monitored by the regulator to ensure fees are not excessive.

Beale said the advantage of KiwiSaver was that the fees were lower but the money was locked in for a specific purpose.

Money invested in a managed fund could be taken out for future school fees or to buy a first car or for whatever was required.

"Parents have got to think about what am I saving for first. What is the timeframe?"

Beale said typically money put in a managed fund should not be touched for five years or more.

The fund's value will fluctuate - meaning it can go down and up depending on how the investments perform and access to the money is not instant like a savings account.

Beale said typically it took two days to get money out of a managed fund.

"You can't take it out straight away and spend it."

Managed funds were also allowed to be held by a trust or company where as KiwiSaver had to be in an individual's name.

For those with a shorter timeframe of less than five years the simplest option was a savings account, Beale said.

If people don't need instant access then a higher interest savings account will typically pay more than an on-call savings account.