Banking from crib to college

Free driving lessons, discounts on books and CDs, the gimmicks in place to lure in young business to the banks are endless.

If you are old enough to come over all misty-eyed when you remember the NatWest piggy banks, now collectors' items, then there's a strong chance you still hold an account with the bank that gave them to you. A symptom of the inertia that keeps consumers from looking for a better deal, perhaps, and, of course, a source of delight to the banks.

It is in their interest to bring in customers at a tender age, and to keep them there until they start making them serious money by taking out mortgages and credit cards and buying insurance. And it's in everyone else's interest to see through the freebies used to lure children and young people in.

First accounts

The accounts for younger children are essentially savings accounts, with little need for extras, and so the first thing parents are likely to look at is the interest rate. As such, freebies play second fiddle, and interest rates for first savings accounts are fairly competitive, hovering around the 4% mark. That way children are brought into the fold nice and early.

HSBC's Young Savers Account pays 4%, while the NatWest interest rate is tiered, starting at 4.07% and increasing depending on the balance of the account. Junior Barclays Plus is similar - it starts at 3.65%, then increases according to the amount saved, although you have to have over ?10,000 to go into the next tier.

11 to 16-year-olds

At secondary school-age, all the major banks offer current accounts with telephone or internet banking and cashcards, trading up to Solo or Electron debit cards at 16 (with the exception of Barclays, which offers a debit card at 15, subject to parental permission). And the gimmicks, in some cases, get flashy.

HSBC's Live Cash account comes with a free clip-on radio or, from September, an electronic touch screen organiser. It also offers a reasonable rate of interest, at 4%.

Abbey, which currently offers a lower interest rate of 2.53%, is unusual in offering no specific gift for 11 to16-year-olds. Instead, says a spokesperson: "Our philosophy is based around giving young people the means to learn about managing their money, and advice to support them."

School leavers

You might be able to leave school, smoke, and even get married, but the average 16-year-old is not likely to be in the habit of doing the research to find the best financial deals. According to Alliance & Leicester, 72% of 16-24-year-olds have not shopped around for their bank account.

This is, of course, a fact not lost on the account providers according to Philippa Gee, investments director at financial advisor Torquil Clark. "You need look no further than the poor deals offered by the major banks as they simply don't need to price themselves into the market - they get business whatever they offer," she says.

However, even if the offer is similar, some banks are now trying to differentiate their products by marketing them to those who are leaving school at 16. Alliance & Leicester is pitching for the business of the 60% of those who choose not to go to university with its Young Worker current account.

Open to those between 16 and 21 who can pay at least ?100 into their account every month, it offers the standard services of debit cards and free internet and telephone banking but also, to those over 18, a guaranteed "emergency fund" of at least ?50 which is interest free for six months, ?3 per month for an authorised overdraft and a pre-approved credit card. However, its standard interest rate is poor, at 0.25%. The linked savings account offers a more competitive 4.5%.

HSBC, meanwhile, offers 16-17-year-olds a Right Track into Study and Right Track into Work package, with a free driving lesson and discounted subsequent lessons.

HSBC's head of youth accounts Josie Clapham says this is about talking to the individual. "If you look at a 16-year-old who's working versus a 16-year-old in education, they have very different lifestyles and needs," she says.

In fact, the two accounts are virtually the same, but for the name. They both offer a chequebook, direct debit facility, debit card and access to the bank's mini cash Isa, but beyond the free driving lessons lies a low rate of interest of just 1%.

There are plenty of other gifts and gimmicks to choose from, like the 15% discount at Waterstone's and HMV for Barclays' 16-19-year-old Young Person's Account customers, or the mobile top-up vouchers for NatWest's 11-18 Card Plus account holders. But Barclays only pays 1% interest on balances, while NatWest pays 3.4%.

Even if with a young person's account that pays a good rate of interest and offers everything you want, it's important to find out what will happen the account holder reaches the age limit. With HSBC's Right Track to Work account, the bank will write to the account holder two months before their 18th birthday to let them know they will be moving on to its account for 18 to 21-year-olds. This is essentially the bank's normal, adult current account, with all its standard features and a few incentives thrown in, and pays a pretty miserable rate of interest of just 0.1%.

It's essential to be aware of what's behind the gimmicks when choosing an account. And, when it comes to moving up an age bracket, it's just as important not to be shuffled along into an account with a low rate of interest. Check whether the new account offers you the best deal for your needs, and if it doesn't, take your business elsewhere, rather than sitting back and demonstrating that inertia banks rely on.