With Christmas just around the corner, your kids are no doubt drawing up their wish lists. Doubtless, few will mention a savings account but a kids' bank account could actually be one of the best gifts you could wish for your child.

Andrew Maitland, National Australia Bank's regional general manager of consumer banking solutions, says children "get a thrill out of seeing their savings grow".

"Encouraging young children to save some of their pocket money is a great way to establish sound financial habits in later life," he says.

He says there's no hard and fast rule on when to open an account for your child. Young children might not understand the concepts of saving and interest immediately but it's good to start encouraging sensible financial habits early on.

"Children can become very enthusiastic about saving money and watching their account balance grow, so encourage them to deposit money on a regular basis, even if it's only $1 or $2 a week."

So, when you're thinking about Christmas presents consider going to a bank branch or post office and opening an account for your child.

You'll need to have all the official documents to meet the bank's 100-point identity check and you may also be asked for a copy of the child's birth certificate or passport. Different accounts give you or your child signing rights to the account so think carefully about what account you'd prefer for your child.

Fee focus

The table (above) shows the top 10 children's bank accounts, according to independent research house RateCity. None of them have fees attached, so your children's savings won't be eaten up by fees.

You might also want an account that has a savings book or internet access so your child can see the savings grow and, if he or she wants, get easy access to the money too.

Maitland says it is best to keep fees to a minimum and look for accounts with no minimum balance requirements, minimal - if not zero - transaction and account keeping fees and no exception or overdrawing fees.

Accounts with unlimited free transactions are best if your child intends to make lots of deposits and withdrawals. Other accounts give a certain number of free transactions; after that your child will pay a fee for each transaction.

Interest

Next consider the interest. Beginning to save early is a great idea - but some accounts pay next to nothing in interest and don't even keep up with inflation, so your child will lose money in real terms which is not the lesson you want to teach.

Look out for children's bank accounts that reward children with bonus interest if they make at least one deposit and no withdrawals in a month. This is to encourage saving and to help children develop good financial habits.

BankWest, for example, released a new Kids' Bonus Saver account for children under the age of 15 in June last year. It pays interest at just 0.01 per cent but if your child has an iron will, doesn't draw any money out and deposits between $25 and $250 each month, they will be rewarded with a whopping interest rate of 10.01 per cent for the first year on balances of up to $3500.

After 12 months the saved amount is automatically transferred from the Bonus saver account to a Children Saver account, which has an interest rate of 3 to 5 per cent for amounts from $1 to $10,000.

National Australia Bank has the Smart Junior saver, with fee-free banking for children, plus unlimited deposits and bonus interest. Interest is paid at a base of 2 per cent but if at least one deposit and no withdrawals are made in the same month a bonus interest of 3.75 per cent is paid on top of the base interest. Children also receive a money box when they open an account.

Other accounts that have attractive rates for children include Mecu's Mysaver account that pays 6.15 per cent interest for people up to 25 years old and Victorian Teachers Credit Union, paying 5 per cent interest.

Another bank not included in the table but which has an interesting child's package is Westpac. Children don't have to pay fees with its Choice Youth package and they get access to unlimited banking transactions at Westpac branches, ATMs, over the telephone and the internet.

But the best interest rates mean linking the transaction account to an internet savings account such as the Maxi-Direct account.

Plan savings

Once you've done some research on fees and interest rates, and decided that your child should have a bank account, Maitland says it is time to decide on a savings plan. "It might be a new bike or a computer game but saving for a target will teach kids the value of money [and saving]. Once your children have reached their savings goal, encourage them to set a new goal to continue their savings habit."

For some kids though, targets aren't enough to get them excited about banking and finance. So, lots of banks provide gifts to encourage saving and to make it a bit more fun.

Finally, don't forget the tax office. If it turns out that your child is an excellent saver and qualifies for bonus interest, remember that the tax office will take 46.5 per cent if a child younger than 16 earns more than $420 a year in interest and doesn't quote a tax file number.

This is to discourage adults from attempting to reduce their own tax liability and diverting income into kids' accounts.

TOP 10 CHILDREN'S ACCOUNT
                                                Effective       Top     Interest        Interest                Fees
Rank Company                                    rate %  nominal         calculated      paid    
                                                        rate %
1       BankWest (Kids? Bonus Saver)                    10.4823 10.01   Daily   Monthly         Nil
2       mecu (mysaver)                          6.3263  6.15    Daily   Monthly         Nil
3       nab (Smart Junior Saver)                        5.904   5.75    Daily   Monthly         Nil
4       Victorian Teachers CU (First Saver)                     5.0945  5       Daily   Quarterly               Nil
5       Gateway Credit Union (Dollaroo Jnr Saver)               4.96    4.6     Daily   Semi-annually   Nil
6       ANZ Bank (Progress saver for kids)                      4.8652  4.76    Daily   Monthly         Nil
7       Orange Credit Union (Super Saver S50)           4.3182  4.25    Monthly Quarterly               Nil
8       Alliance one CreditUnion (Young achiever account)       4.25    4.25    Daily   Anuually                Nil
9       New England CU (Youth account)                  4       4       Monthly Annually                Nil
10     Home Building Society (Childrens Account)                3.5567  3.5     Daily   Monthly         Nil
Source: RateCity.com.au based on $100 balance