If all you're doing with a bunch of cash over 18 years (!) is holding it in a bank account to collect interest, you're just losing money to inflation. Bank interest is almost nothing. Better to hold stocks, or at the very least bonds if you're extremely risk-averse.
Though this needs to be put in context - maybe you actually intend for the child to be permitted to spend the cash, in which case a bank account makes plenty of sense.
As the OP has "Aussie" in their name I think they'd be referring to the Commonwealth Bank of Australia Dollarmites accounts. They were shutdown recently after a watchdog investigation. It was locking kids into using the bank that would continue into adulthood and schools were getting paid to sign kids up.
"They found that it provided little value for children and the largest outcome was that children were being exposed to ‘sophisticated’ marketing tactics."
3% is becoming more common as of the last few years, at least in the US. I know several banks off the top of my head that offer 3.5% or higher (and more if you are a new customer) for their savings accounts. I would persuade people who use banks that haven't moved on from near-zero APY to move on themselves.
The rate goes up and down with inflation, high inflation, high interest - low inflation, low interest.
But even then, yes some banks still offer no or 0.5% accounts.. because they can, and many people can't be bothered to figure out a better option, or "trust" there bank and don't want to move. (or the bank has high interest account, but make it complicated to use)
I'm definitely at the point where, if not sticking money in my mattress, I'm keeping a lot in pretty safe investments. Did sort of an equity housecleaning a couple years back and consolidated some investments, in part to make them easier to track and manage.
Truly conservative investments are more in the 3-4% range these days; money markets were running around 5% a few years back but they've come down. I have some bonds (including treasuries) that are higher than that but I bought them quite a while back. For long time horizons I'd be more weighted on equity indexes and maybe dividend-heavy stocks.
You’re not giving it to a banker, you’re trading risk for return and flexibility. One can access savings at any time, any amount. Not true with bonds, maybe if you fiddle with indices.
Also bond returns have averaged 5% over decades, not 7.
Not taking all this into account, and simply claiming bogey men took your money, is misleading.
While true, funds for retirement, college or to give as a gift when your kids move out do not need liquidity. Therefore, those should not be in savings.
From a return on investment perspective, it is not great.
Bank accounts are convenient and safe, but you pay the price with low interest rates. But if you don't intend to touch that money for 18 years, you don't need the ability to withdraw at any time without losing money that a bank account offers, so why pay the price for it?
However, it has symbolic and educative value, teaches the value of saving, how interest works without going into the complexities of the financial system, and making it clear to your kids that it is their money, even if they can't touch it yet. So it may be a good thing for that reason, when the sums are reasonable.
You should invest in different things depending on your age.
An old person might want to have more of their money in yielding assets. They are withdrawing from the account so the certainty of having predictable value might outweigh the inflation risk.
Savings intended for a young child should be allocated almost entirely into equities. They are not affected by drawdowns since they won't be withdrawing from the account for a decade or two, but inflation is a primary concern.
A bank account is a particularly bad place to put savings intended for a child long-term. A good high yielding account might barely keep pace with inflation, but it's unlikely to grow much in real terms. The average bank account will lose money in real terms in that 10-20 years.
The object of the game is to live within your means, save and invest. More than half the population does not do that. When you’re 18 the treadmill starts turning if you don’t use your time wisely, you’re going to be in trouble at the end of life. When you are young, simple compounding is your friend because you have time.
People have won the lottery and blown it all, some people who have extremely high paying professions in their youth, have over the course of time have also blown it all.
Not OP, but I think they are referring to the fact that you can get tax advantaged accounts instead of a standard savings account. Not to mention the interest rate on those accounts is basically a rounding error.
Though this needs to be put in context - maybe you actually intend for the child to be permitted to spend the cash, in which case a bank account makes plenty of sense.