Children don’t have unrestricted use of bank accounts. Nor are they free to open bank accounts on their own. To do that, they need an adult’s involvement. The role of adults (usually the parents) is to decide what type of account would be best for the child. They also decide who can have access to the account.
The rules governing who can operate an account are set out in a document called an account mandate (also known as an account signing authority). An account mandate spells out who has access to an account and how that access will work. Parents may decide they alone will have access to the account. Or they may decide to operate the account jointly with the child. Or they may choose to give the child (depending on age) sole access.
We sometimes receive complaints from parents concerned that their child has been able to access an account without their knowledge or authority. We also receive complaints from one parent that the other (usually estranged) parent is operating their child’s account in a way the first parent does not approve of. In such cases, we check the account mandate because it records the parent or parents’ intentions at the time of the account’s opening about how the account is to be used.
Understanding clearly who has signing authority is vital to avoid a child or parent operating an account (or spending the funds in it) in a way that is contrary to everyone’s expectations at the time the account was opened.
Types of children’s accounts
Banks offer accounts geared specifically to children (Children are deemed minors until the age of 18, when they become adults). Such accounts have different restrictions about control of the account. The restrictions are usually related to a child’s age.
A parent will generally operate an account for a very young child (say, under seven). As the child gets older, the bank’s terms and conditions usually allow a wider range of activities, such as making withdrawals, setting up internet banking and getting a debit card. Children closer to adult age typically can open and manage their own savings accounts, do internet and phone banking and use ATMs to access their accounts.
Parents can also open a standard savings account in a child’s name, but with themselves as sole signatories of the account. They can also open an account, with themselves and the child as joint account holders. Finally, they can even open what is, in effect, a kind of trust account: an account in their names (allowing them full access to the funds in it), but on the understanding those funds are to be used for the benefit of the child.
Banks must give accurate – and sufficient – information to parents about the types of children’s account they offer so parents can make an informed decision about which type of account will best suit their needs.
Banks have the same obligations to under-18 customers as they do to adult customers: they must be fair and reasonable in their dealings and must act on customers’ instructions in accordance with the account mandate.
Ownership of money in a child’s account
In general, the account holder owns the funds in an account. Therefore:
- If an account is in a child’s name, the child owns the funds.
- If a parent and a child are joint account holders, the parent and child are joint owners of the funds.
- If a parent is a signatory to an account, but not an account holder, the parent does not own the money (although he or she has control over how the account is operated while still a signatory).
- A child who is the sole account holder can, on reaching 18, change or remove the signatories and operate the account alone.
Complaints about children’s accounts
Most complaints we receive are about who controls or has access to accounts. Typical complaints include:
- A parent has asked a bank to set up a children’s account in a way that prevents a child from accessing the account on his or her own, but the child has nonetheless been able to withdraw money.
- A bank has not given a parent good advice about the best way to set up a children’s account, and the child or other parent has used the funds in the account for purposes other than those the first parent had in mind when setting up the account.
- A bank has allowed one parent, following a relationship breakdown, to remove the other parent from the account mandate, or withdraw the money in the child’s account, or close the account.
When parents complain that, contrary to their intentions, a child has been able to access an account and spend the money in it, the problem is usually either that:
- the account mandate was set up to allow the parents or the child to operate the account – a fact the parents were unaware of or had forgotten, or
- the bank failed to set up the account properly or allowed withdrawals to be made contrary to the account mandate.
In looking into such complaints, we check:
- the information the parents gave the bank when setting up the account
- the account’s terms and conditions
- the account mandate.
(We conduct the same checks when one parent complains that the other has withdrawn funds from a child’s account or closed the account.)
Sometimes we will find that a bank set up an account that did not correspond with what the parents said they needed.
Parents sometimes regard funds withdrawn and spent by a child contrary to their wishes as “lost” money, and they seek full reimbursement. However, we do not necessarily regard money spent by a child as a loss if the account is in the child’s name. In depositing money into the child’s account, the child becomes the owner of the funds.
There are, however, situations where we may find that the money spent by a child is a loss. For example, when:
- The bank did not set up the account appropriately.
- The child is the account owner, but is not authorised to operate it.
- The parents told the bank they were putting their own money into the child’s account.
- The money was to be used for a specific purpose.
In addition, we can consider compensation for any stress and inconvenience the parents suffer from receiving inadequate or incorrect advice from the bank when the account was set up.
As a parent, it is important to check the account mandate is recorded accurately according to your instructions.
Bank failed to make clear couple’s income factored into loan application
In December 2019, George approached the bank about a $300,000 loan to help his brother buy a house. His brother wanted to buy a house in a new development. He had a good income but was nearing retirement age. George asked the bank whether it could give him a loan, and he could pass on the funds to his brother, who would pay him back, and he, in turn, could pay the bank back. George was on national superannuation and his wife was a teacher. They still had a mortgage on their home, but no debt. They had shares, bonds and cash of about $500,000. The bank gave pre-approval for a $300,000 loan, valid until April 2020.CASE 2
Bank settles over series of complaints
Kiri approached the bank for a loan to buy a car. She did not qualify for a personal loan, but her personal banker matched the promotional credit card interest rate offered by a competing bank of 4.99 per cent. He said the bank would also apply this low rate to both her existing credit card balance and the $3,000 she needed to buy a car if she withdrew the money as a cash advance. This second part of the offer would last for six months. Kiri asked what the interest rate would be at the end of the six months. She said she was told she could simply apply to extend the promotional rate for another six months.CASE 3
Need for mother's signature unaffected by name change
David and Sarah opened an account for their daughter when she was a baby. The account was in the child’s name, but the signatures of both parents were needed to operate it. Years later they separated, and Sarah became known as Tani.
Deceased customers' accounts
A bank will freeze a deceased customer’s individual accounts when notified of the death. This includes transactional accounts, term deposits, credit cards and loans.
Banks won’t necessarily know that a customer has died, so it is important to notify the bank as soon as possible. Anyone can notify the bank but typically this responsibility would fall on the next of kin or the estate representative…
A bank can end its relationship with a customer at any time, just as a customer can move to another bank at any time. A customer may move because a competitor offers a better deal or because the relationship with the bank is unsatisfactory or has broken down. A bank may decide to close a customer’s account because of how that person has been operating it, or because of regulatory requirements, or …
An account mandate is a document that sets out:
who owns an account (often called the account holder or account owner)
who can use the account (and how it can be used)
who can access information about the account.
A mandate is very straightforward if you are the only one operating an account. But you need to take care if there are two or more account holders, or if you let someone else operate th…