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Why your child should have a savings account and how to open one

Mother and daughter
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Mother and daughter
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Opening a savings account for your child can provide a safe place for their money, allow it to earn some interest and meanwhile teach them about banking and money management.

When setting up an account for a child, parents can choose between a custodial account or a savings account designed for kids. Many financial institutions offer both options, making it relatively simple to find one that’s right for your family.

Custodial accounts

A custodial account is an account that parents can set up and manage on their minor child’s behalf, and the child is able to take over the account upon becoming a legal adult. Once a custodial account has been established, any adult can contribute to it — and once a deposit has been made to an account, it can’t be revoked. Custodial accounts come in two varieties, with their main difference being the types of assets they can hold.

Uniform Gifts to Minors Act (UGMA) accounts

UGMA accounts can hold financial assets such as cash, securities, annuities and insurance policies. These accounts can be opened in all 50 states.

Uniform Transfers to Minors Act (UTMA) accounts

UTMA accounts are more flexible than UGMA accounts, in that they can hold any type of property, whether it’s tangible or intangible, including real estate, artwork, royalties and patents. Transfers to these accounts are also permitted through inheritance. These accounts can be opened in every state but South Carolina and Vermont.

Unlike a savings account, a custodial account can hold more than just cash. Your ability to include investments provides the potential for larger long-term gains than a savings account. A downside of custodial accounts is that since the assets are owned by a minor, it could impact the ability of the child to get federal financial aid for college.

Both brick-and-mortar and online-only banks may offer UGMA or UTMA accounts, though the annual percentage yield (APY) may be substantially higher with an online bank.

Savings accounts for kids

An alternative to a custodial account is a savings account that’s designed for children under 18, and there is joint ownership between the parent and child. These accounts may come with perks such as apps with educational content and parental controls, birthday bucks for kids and debit cards for teenagers.

Look for a children’s savings account with no maintenance fees, no minimum balance requirement and a comparatively high annual percentage yield (APY).

What happens when the child turns 18 can vary from bank to bank. The account may be converted to an adult savings account, or it may remain jointly held until the owners decide to make changes.

There are many benefits of opening a savings account for a child, such as:

  • Helping them learn to plan ahead, as well as stay focused on goals and priorities.
  • Teaching them to save for the things they want until they can afford it.
  • Showing how their money can grow, thanks to compound interest.
  • Giving kids hands-on experience with banking online as well as at a branch.

Learning financial responsibility takes time, so don’t give your child more than he or she is ready to handle. Remember that a joint savings account gives your child access to the money, so some parents may want to choose an account that provides parental controls.

Tips to consider when shopping for a savings account for your child include:.

1. Open a savings account, not a checking account

Checking accounts are for spending money whereas you’re likely trying to teach your child how to save. It’s advisable to wait until your son or daughter is a teenager or has a job before allowing them full access to a checking account.

You may need to supply some identification documents for your child during the account opening process, such as a social security card or birth certificate.

2. Bank at the branch and online

With your help, your child can sign on to the bank’s website or use its app to learn about managing their account from a smartphone or computer. They can check the account balance, transaction history and interest earned.

Your child may be tech-savvy enough to do basic banking functions online, but it can also be helpful for them learn proper banking etiquette at a brick-and-mortar branch. When kids receive money for a birthday or doing chores, they may enjoy visiting a branch to hand the money to the teller and receive a paper deposit receipt.

3. Find a bank that promotes financial education

Some banks make saving fun and teach kids good money habits through offerings like mobile app features, online tutorials and birthday bonuses. Ask a banker and check the bank’s website to see what resources they provide for young people.

The website of the Consumer Financial Protection Bureau, a financial regulatory and education agency, is also a good place to find information on teaching your child about money matters.

Best banks for kids’ bank accounts

Alliant Credit Union

Eligible age range: Kids up to 12 years old

Availability: The Kids Savings Account is available nationwide to families who are members of Alliant. Membership is open to those who work for an employer linked to Alliant, as well as to anyone who pays a $5 membership fee that is donated to Foster Care to Success.

APY: 0.6%

Kid-friendly features: Alliant has educational content on its site and encourages children to use the Alliant Mobile Banking App to learn about banking firsthand.

Bank of America

Availability: For a minor child to get a savings account at Bank of America, you and your child need to own the standard savings account jointly.

APY: 0.01%

Kid-friendly features: Bank of America’s site has educational content teaching children about money.

Bethpage Federal Credit Union

Eligible age range: Up to 17 years of age

Availability: The Youth Savings custodial account is available to New York residents only.

APY: 2% on balances up to $1,000, 0.35% APY on additional balance funds

Kid-friendly features: Bethpage offers free interactive learning tutorials through its My Money 101 financial education program.

Capital One

Eligible age range: Up to 18 years of age

Availability: An adult must own the account jointly with the child. If the child is under the age of 12, the adult needs to be the parent or legal guardian.

APY: 0.3%

Kid-friendly features: The app features parental controls, and the website offers Kids Savings Account: 101, which teaches the basics of saving.

Golden 1 Credit Union

Eligible age range: Up to 18 years of age

Availability: An adult must own the Youth Savings Account jointly with the child. If you work or live in California, or belong to one of the nearly 1,000 employee groups, you can join Golden 1 Credit Union.

APY: 0.05%

Parent-friendly features: Golden 1’s Financial Wellness Center offers free online tutorials, including ones on family conversations about money and budgeting for families.

USALLIANCE Federal Credit Union

Eligible age range: The MyLife Savings for Kids is for those up to 13 years of age, and then it transitions to a checking or savings account designed for teenagers.

Availability: Membership in USALLIANCE is open to members of four participating associations, or to those who live, work or worship in select communities in Massachusetts, Connecticut and New York.

APY: 2% on balances up to $500

Kid-friendly features: Children earn $10 in “Birthday Bucks” each year. The credit union’s website also has a budgeting aid and a Financial Education page, both of which contain learning resources for kids.

Wells Fargo

Availability: The Wells Fargo Kids Savings Account can be set up as a joint ownership account or a custodial account.

APY: 0.01%

Kid-friendly features: Wells Fargo offers student resources on its website.

4. Look for the highest yields

Search for high-yield savings accounts. Credit unions and online-only banks typically offer the best rates, but don’t just shop for rates. Accounts with the highest rates may not have other features that you want.

5. Avoid account fees and ask about features

Some banks and credit unions waive monthly fees and minimum-balance requirements if the account is for a minor child. Ask about account perks and features, such as online tutorials and parental controls.

6. Don’t forget about saving for college

Most parents can’t afford to wait when it comes to saving money for their child’s education. The average cost to send a child to a public, in-state, four-year institution is $10,740 per academic year, according to the College Board. It’s $38,070 for a private, nonprofit four-year school.

There are a variety of ways to build up savings for that daunting expense. You just have to decide which one works best for your family’s goals and circumstances.

  • 529 account: Most parents save for college in 529 plans, which allow you to invest after-tax money into diversified, low-cost stock and bond funds and then withdraw the money tax-free for qualified education expenses.
  • UGMA/UTMA accounts: UGMA and UTMA accounts are custodial accounts that allow parents, grandparents and others to transfer assets to a minor child. The assets are managed for the child until he or she reaches adulthood. Custodial accounts are considered assets, so they have tax implications. Be wary of these accounts if you suspect your child may one day need financial aid to attend college — custodial accounts can disqualify a student or reduce how much they qualify to receive.
  • Education Savings Account (ESA): Also known as “Coverdell ESAs,” these accounts get no special tax treatment from the states, but federal taxes are deferred. The IRS doesn’t tax withdrawals as long as they are used for qualifying education expenses. ESAs have little impact on eligibility for financial aid, even if the student owns the account.

Whatever your financial goals are for your child, make learning about money fun. The rewards will pay off handsomely for both of you.

Bottom line

It’s never too soon to get your child started on a savings path and a kid-friendly savings account can go a long way toward establishing good money-saving habits.

They’re not only a safe place to keep money and earn a little interest, but they’re also a proven way to help teach your child about money management and saving toward financial goals.

Written by
Karen Bennett
Consumer banking reporter
Karen Bennett is a consumer banking reporter at Bankrate. She uses her finance writing background to help readers learn more about savings and checking accounts, CDs, and other financial matters.
Edited by
Wealth editor