Your Guide To Child Savings Accounts

Child savings accounts are a great tool for building your kids’ financial literacy from a young age. These accounts can also help them learn to save for a first car, college and many other important purposes.

Parents can pay an allowance into the account, while kids can deposit money from gifts or part-time jobs. Some banks even provide ATM cards so young account holders can easily access their money.

Let’s explore the finer points of child savings accounts.

What Is A Kids’ Savings Account And What Makes It Different?

A kids’ savings account is for people under 18. Some banks offer benefits like low or no minimum opening deposit requirements, and no monthly account maintenance fees. Some banks also provide mobile apps and online resources to build knowledge of budgeting, personal finance and other good financial habits.

Keep in mind that child savings accounts may be better suited to introducing kids to banking than for saving for college. If you want to help them save for a higher education, a tax-advantaged account like a 529 plan might be a better option.

Options For Savings Accounts For Children

Parents often have a choice between custodial accounts and savings accounts when opening bank accounts for their kids. Let’s examine the key differences.

• Custodial accounts: These accounts don’t allow kids to access funds until they turn 18. Custodial accounts – also known as Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) accounts – might create tax challenges. If the account accrues interest or dividends of more than $2,300, the account might be subject to taxes.
• Savings accounts: These accounts are more straightforward, allowing your child to deposit, withdraw and monitor their account from the time you open it. As a joint account owner, you can also oversee their account activity. When the child turns 18, many banks will automatically convert the child’s account to a regular account.

When To Get A Savings Account For Your Kid

What’s the best time to open a savings account for your child? It depends on the savings goals you set. You can start as early as when they’re a baby if your goal is saving for their future.

To start a conversation about managing money, though, consider waiting until they understand the concept of saving money.

Parents can also open one account that’s strictly for building a nest egg and another for developing their child’s financial education.

What To Look For In The Best Savings Accounts For Kids

You’ll notice that many banks and credit unions offer savings accounts for children. Which one should you pick? Consider looking for an account offering these perks.

Online Account Access

The internet can provide 24/7 visibility to bank accounts from any location. This can save you and your child some trips to a physical bank. Plus, online banking can start a conversation about the importance of strong passwords and the possibility of identity theft.

A High Interest Rate

The annual percentage yield (APY) can fluctuate often. But some accounts paid an interest rate of more than 5% as of October 2023. Comparing the interest rates of different child savings accounts is a smart move.

No Account Fees Or Minimum Balance Requirements

Often, savings accounts for kids don’t require monthly maintenance fees or a minimum balance. Be sure to factor in these requirements if you go with an account that has fees and minimums.

Debit Cards

If your child is old enough, you might want to consider getting them a debit card. It can come in handy for withdrawals during an emergency. Parents can often set limits on debit cards for kids that restrict how much money they can use and how they can use it.

Member FDIC Insurance

It’s always smart to deal with a reputable bank that is Federal Deposit Insurance Corporation (FDIC) insured.

How To Open A Kids’ Account

Opening a kid’s bank account is straightforward. You’ll need at least one document in your child’s name to get started. Acceptable documents usually include:

• A school-issued photo ID
• A passport
• A birth certificate
• A Social Security card
• Immunization records

You might also need to bring a minimum opening deposit, though that’s not always the case.

Finally, consider bringing your child with you. Helping to open their bank account could be a learning opportunity.

FAQ: Savings Accounts For Children

Here are a few common questions about savings accounts for kids.

What happens to my kid’s savings account when they turn 18?

Typically, a bank will convert a child’s account into a regular account automatically when they reach the age of 18. A bank might send a letter or other notification first, though.

Do savings accounts for kids accrue interest?

Yes, it’s common for kids’ savings accounts to accrue interest. Parents should look for a competitive interest rate when selecting a financial institution and account.

What should I bring to a bank to open a savings account for my child?

As stated, you’ll need some form of identification for the child, which can be a school photo ID, Social Security card, immunization records, passport or birth certificate. Some banks may require an initial deposit, as well.

Do kids get a debit card with their savings account?

It’s possible to get a debit card for a child savings account. Check with your bank for policies about issuing debit cards, as well as parental controls.

Is my child old enough to have a savings account?

It depends on your financial goals. Younger children might not be ready for financial literacy lessons, but saving for the future is always a wise move. When they’re older, a savings account is a great way to help kids understand finance.

The Bottom Line: A Savings Account For Your Child Can Yield Huge Benefits

It’s never too early to start saving, so you could open a savings account for a newborn baby. You can also wait until your child is old enough to grasp money management. Either way is a parenting win that will yield long-term benefits. Just research your options carefully to get accounts that will make the most of every deposit.

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