What is a savings account for kids?
Bank accounts for kids tend to be custodial or joint accounts. This means that a legal adult opens the account for and in conjunction with the child, providing management and guidance regarding the account. These are different from student checking accounts designed for older teenagers and college students, who can open an account on their own.
Some reasons to open a savings account for a child can include:
-
Access to higher rates. Some accounts for kids offer higher APY without requiring minimum balances.
-
Create a banking history. FDIC-insured savings accounts are a safe way to establish a banking history for a person even when they are very young.
-
Teaching financial management. Having a savings account can be interesting to a child and offers a chance for parents or others to teach and model good savings and money management practices.
What are the age limits to open a kids’ savings account?
Age limits vary by bank, but many offer these products for children up to age 17. When a child turns 18, they may need to upgrade their account or transfer funds into another type of account.
Some banks also have minimum age limits. For example, they might offer a children’s savings account for those aged six to 17. Review the requirements for a kids’ savings account with each bank you’re considering to find out the age limits.
How do kids’ savings accounts work?
A savings account for kids doesn’t allow kids to show up and open an account as minors — although there are a few options on the market for 17-year-olds. Instead, these accounts allow children to access banking experiences and potentially higher-than-average interest earnings as long as they have an adult co-signer, joint account holder or custodian.
The basic idea of these accounts is that an adult can set one up to help a child save money. Hopefully, the adult is a parent, a guardian or another caring loved one who wants to help a younger person build money management and savings skills for the future.
Some common goals for people opening savings accounts for kids include:
- Creating an account and funds the child can manage with guidance
- Helping a child save for larger purchases, such as a new bike
- Establishing a long-term savings option for large future expenses such as a first car or college
Pros and cons of kids’ savings accounts
Pros explained
-
Helps kids establish good financial habits: Having a savings account can help kids establish strong savings patterns early on. When adults are actively involved in a child’s financial education and guide them in managing the account, kids can learn about the value of money, how to save for larger purchases and investing basics like how interest works.
-
May offer higher interest rates: Many children’s savings accounts offer higher interest than you might get with a traditional checking account. If kids keep money in these accounts over a long time, their interest earnings can add up.
-
Typically have low or no fees: These types of accounts tend not to come with monthly maintenance fees and other expenses, even if a child carries a low balance.
Cons explained
-
Require a joint or custodial owner: Children will need an adult custodian or joint owner for their account. In some cases, this means the adult has access to the account and can spend the child’s money if desired. It also puts the account at risk if the adult ever faces a bank lien due to debt issues.
-
May require the adult to have an account of their own with the bank: Some banks only offer children’s accounts when the adult in question already has a checking, savings or investment account of their own with the institution.
-
Might involve inconvenient access to funds: If you choose an online-only bank and the account doesn’t include ATM access to funds, you may need to transfer funds to another account to access them. This can create some inconvenience and mean you need to plan ahead when a child wants to use their funds.
Types of child savings accounts
Banks use a variety of terms for kids’ savings accounts. Some of them mean slightly different things.
Youth savings accounts
Youth savings accounts tend to mean a savings account that is opened and jointly owned by a minor child and at least one adult. The adult acts as the legal custodian of the account, signing paperwork and handling other matters the child is not legally able to while allowing the child an active role in decision-making so they can learn about saving.
Teen savings accounts
Teen savings accounts are often accounts designed for older teens and young college students. Typically, these account holders are at least 17 years old and may be able to own the account on their own.
Custodial accounts
This is another term for an account that is set up by and managed by an adult for the benefit of a child. In many cases, the account is managed without the input of the child, as the adult intends the savings to transfer to the child when they are older.
Educational savings accounts
Some savings accounts are designed specifically to help families save for college. These specialty accounts may come with some potential tax benefits, and it’s typically a good idea to consult a financial advisor or another expert when setting them up.
How to choose a savings account for kids
The best long-term savings account for a child is one that works for the family or adult helping the child save.
When reviewing options, consider factors such as:
-
Parental controls. What options does the custodian adult or parent have to help the child to manage the account? You may want an account where an older child can spend or access money independently with the ability to see how they are using their funds, for example.
-
Fees. Look for accounts that don’t have monthly maintenance fees — bonus points for accounts that waive overdraft fees and other types of fees for kids’ savings accounts.
-
Safety and security. Bank with an institution that is FDIC insured.
-
Accessibility. Find out how you can access funds and ensure it meets the needs of both you and your child. Some kids’ savings accounts come with an ATM or debit card option, while others require you to transfer funds to a checking account before you can use them.
-
APY. Consider how much interest is paid on the account. Look for options that pay an above-average APY, such as high-yield savings accounts, without fees or minimum balance requirements.
-
Digital experience and mobile app. Consider the overall experience when interacting with the account on a computer or via a mobile app.
-
Customer service options. Choose a bank with customer service options that meet your preferences. If you want to work with local branch reps in person, for instance, you shouldn’t choose a kids’ savings account with an online-only bank.
How to open a savings account for a child
You can open a child’s savings account in the same way as an adult savings account — by completing the application online or at a local branch.
Some things you will need to open such an account can include:
- A government-issued ID for yourself
- Some form of ID for the child, such as a birth certificate or student ID
- Both of your Social Security numbers
- Addresses and contact information
- An opening deposit amount, which you can transfer from another account or make with check or cash at a local branch
Is a kids’ savings account worth it?
The best child savings account — one that earns decent interest without high fees — can be worth it.
In the short term, a child’s saving account helps kids learn about managing money while saving up for things they may want. In the long term, this type of account can help kids save for large expenses in early adulthood and establish financially healthy savings habits that will serve them throughout their lives.
Alternatives to savings accounts for kids
Savings accounts are a great financial tool for people of all ages, but you might want to consider other types of savings accounts when preparing children to manage money well.
Checking accounts
Checking accounts for kids provide access to debit cards and other features that aren’t always available with savings accounts. They don’t, however, tend to come with above-average APY — or any interest earnings at all, in many cases. You might opt for a child’s checking account vs a savings account if you want to help children learn to spend and budget well.
CDs
The best CDs often have higher APY than savings accounts, and they can be a stable short- or long-term savings option. This can be a good choice for a baby savings account, as you can time the CD to mature when the child is a certain age — for instance, around 16 or 17 when they might need to buy a car or around 18 when they might want to fund college tuition.
Other savings accounts
You can even find options for investment accounts and other specialty savings. These can be good opportunities to expand financial education for kids in a practical way.
You’ve viewed 3 of 3 articles
LOAD MORE