Junior saving accounts a big bet for banks in race for clients

Walk into any local banking hall and you are likely to see a common feature in almost all front office desks—a model of a lion or an elephant.

These are not just toys as they seem, but an important safe for minors who hold junior accounts and the keys to the safe are only kept by the cashier at the bank; not even the child who is the account holder.

This is a trend that is catching up with the local banking sector, as the chase for customer deposits heats up.

Analysts said parents are increasingly introducing a savings and personal finance culture to children at an early age, offering banks a lucrative income stream .

Two weeks ago, Barclays Bank gave its junior savings account—the Junior Eagle Account—a fresh look by unveiling the Junior Eagle Club which will see young savers enjoy activities ,including holiday camps, talent shows, golf and tennis clinics and go-karting.

“The savers will get a free bankers cheque for school fees, a bonus interest if no withdrawals are made in a quarter, a free standing orders as well as free deposits and withdrawals into the account, ” said Abdi Mohamed, director of Consumer Banking at Barclays Kenya.

The move by Barclays signals the growing prominence of junior savings accounts that is sending banks back to the drawing board as they look for strategies to cash in on the opening .

“Junior savings accounts have been in Kenya for many years although unknown to non-customers of the banks providing them. One of the oldest junior accounts has been operated by Barclays Bank for close to 40 years but has never received publicity,” says Patrick Wameyo, a financial advisor.

At Co-operative Bank, officials said Jumbo Junior account—one of the oldest such account in Kenya—has over 80,000 accounts and commands at least Sh2.5 billion in deposits, close to four per cent of the bank’s total deposits in the last financial year ending June 2010.

Fresh entrants into the business too are recording impressive earnings from the junior banking products.

“The Chase Pebble account has been in operation since last year but was re-launched early this year with new features to suit junior savers. We have over 300 children account holders and the number is growing,” says Magdalene Mulandi, Chase Bank’s marketing manager.

Majority of the local junior accounts are operated with a minimum balance of Sh1,000 and attract an average of four to five per cent interest rates on the available balance in the account every end of the year, with a few banks offering below this figure.

According to players in the banking sector, the interest rates have for long dictated the numbers of customers to these accounts which has posed a challenge to those in the business as the interest rates are often determined by market forces that may cause them to fall below the expectations of the customers .

“The interest rates to the accounts keep changing as they are determined by the market forces however depending on one’s account balances, account holders earn interest on their savings every end of the year,” adds Ms Mulandi.

Kenya is increasingly joining the ranks of Western economies, where parents, bankers and governments have made children savings accounts such a big thing for banks.

“In Australia, the UK and in the US, there have been deliberate incentives by governments to encourage savings education among all ages. School programmes have been introduced to educate children on how to save part of pocket money and this has seen a more sustainable savings culture in these economies,” adds Mr Wameyo.

The majority of local junior accounts are normally run by parents on behalf of the children with minimal involvement of the child by way of training on the benefits the account offers beyond setting aside money to deposit in the account every end of the month.