Can I open a savings account for a child
Short answer
Yes, as a parent or guardian, you can open a savings account for a child, usually as a custodial or joint account where you manage the funds until the child reaches legal adulthood. Opening such an account helps teach your child about savings, financial responsibility, and money management from an early age.
What is a savings account for a child?
A savings account for a child is a special bank or credit union account designed to help minors save money securely and earn interest. Since children under 18 generally cannot open accounts on their own, these accounts are set up with a parent or guardian as the custodian or joint owner. This means the adult manages the account until the child reaches the age of majority, which varies by state—commonly 18 or 21 years old.
The account functions similarly to a regular savings account: money is deposited, earns interest over time, and can be withdrawn as needed. However, the child typically cannot access funds independently until they reach adulthood. The account is a tool to separate saving from spending money and to introduce children to basic financial concepts.
For example, a child’s birthday money, holiday gifts, or allowance can be deposited into this account to accumulate savings. The money remains protected and can grow with interest or bank incentives, helping establish a solid financial foundation.
How does opening and managing a child’s savings account work?
Opening a child’s savings account involves a parent or guardian applying with the bank or credit union. You’ll need to provide identification for yourself and your child, including the child’s Social Security number and birth certificate, depending on the institution’s requirements. The adult will be listed as the custodian or joint owner with full control over deposits and withdrawals until the child is legally allowed to take over.
Example:
Suppose you open a custodial savings account for your 8-year-old with an initial deposit of $50. You add $20 each month from their allowance or gifts. If the bank pays 1.5% annual interest, after one year, the balance will be approximately $290, including interest earned. Reviewing this growth with your child can illustrate how saving consistently helps money grow.
Managing the account means you control all transactions—making deposits, monitoring balances, and ensuring withdrawals are for the child’s benefit. When your child reaches the age stipulated by your state or institution, control transfers to them. This transition is an excellent opportunity to teach more complex money management skills.
Why should parents or guardians open a savings account for their child?
Opening a savings account for your child is more than just a place to store money; it’s a practical education tool for building lifelong financial habits. It encourages children to understand the value of saving regularly and teaches patience as they watch their money grow with interest.
Having a dedicated savings account can help kids learn goal-setting skills. For instance, a child may decide to save for a bicycle or a college fund. Watching their progress toward these goals can motivate ongoing saving behaviors.
Additionally, the funds in the account are protected and separate from everyday spending money, reducing the chance that savings are spent impulsively. It also provides a safe place to keep money gifts and allowance.
This financial involvement prepares children for future responsibilities, such as budgeting, investing, and credit management, which are essential skills for successful adulthood.
What types of savings accounts are available for children?
Parents can choose from several types of accounts designed for minors. The main options include:
- Custodial accounts (Uniform Transfers to Minors Act - UTMA or Uniform Gifts to Minors Act - UGMA): These accounts are managed by a custodian (usually a parent) until the child reaches adulthood. The custodian controls the funds but must use them for the child’s benefit. At legal age, the child gains full control.
- Joint savings accounts: Both parent and child are joint owners. Parents typically maintain control but may allow the child to make deposits or withdrawals. These accounts often have fewer restrictions but require trust that the child won’t overspend.
- Kids’ savings accounts: Many banks offer savings accounts specifically for children, often with no minimum balance, lower fees, and educational resources. These accounts encourage saving habits with kid-friendly designs and sometimes reward programs.
When selecting an account, consider factors like minimum deposit requirements, fees, interest rates, and ease of access. For example, a custodial account might be preferable if you want strict control until adulthood, while a joint account might suit older children learning financial independence.
What are common terms people confuse with a child’s savings account?
Understanding financial terms prevents confusion when choosing the right account:
- Checking accounts: Designed for everyday spending, checking accounts often provide debit cards and check-writing privileges. They are different from savings accounts, which focus on saving money and earning interest.
- Custodial investment accounts: These allow adults to invest money for a child in stocks, bonds, or mutual funds. While potentially more rewarding, they carry risks and complexity, unlike a savings account which is low risk and stable.
- 529 college savings plans: These are tax-advantaged accounts exclusively for education costs. They are not general savings accounts but can complement a child’s financial planning.
Clarifying these terms helps parents make informed decisions about which financial products best suit their child’s needs.
How do you open a savings account for a child step-by-step?
Opening a child’s savings account can be straightforward if you follow these steps:
- Research options: Compare banks and credit unions to find accounts with low fees, good interest rates, and features that suit your goals.
- Gather documents: Prepare your government-issued ID, your child’s Social Security number, birth certificate, and proof of address.
- Visit the bank or apply online: Many banks allow online applications, but some require both the parent and child to appear in person, especially for minors.
- Complete the application: Provide necessary personal information and agree to the account terms.
- Make the initial deposit: Most accounts have low minimum deposits ($1-$25). Use birthday money or allowance if you want the child to contribute.
- Set up account access: Decide how the child will view the account—online access, passbook, or periodic statements.
- Discuss account rules: Explain to your child how deposits, withdrawals, and interest work. Set clear expectations about when and how money can be used.
By following these steps, you ensure the account is set up correctly and becomes a positive learning tool.
What should parents do after opening the savings account?
After opening the account, actively involve your child to reinforce learning and encourage saving habits:
- Set savings goals together: Help your child choose short-term goals (a toy or game) and long-term goals (college or a car). Writing goals down makes them more tangible.
- Make regular deposits: Encourage your child to deposit portions of gifts, allowance, or earnings. For example, “Save half your birthday money and spend the rest.”
- Track progress: Review monthly statements or online balances with your child, highlighting how interest adds to their savings.
- Celebrate milestones: Praise your child when they reach savings goals or add money regularly, reinforcing positive behavior.
- Teach about interest: Use simple explanations like, “The bank pays you a little extra money for keeping your savings with them.”
- Discuss responsible withdrawals: Explain that withdrawing money should be for meaningful needs or goals, not impulse buys.
These ongoing activities develop your child’s confidence and understanding of money management, preparing them for financial independence.
For detailed guidance on starting the process, see How to open a kids savings account, and explore why a savings account matters at Should I Have a Savings Account for My Child?.
Frequently asked questions
Can I open a savings account for a child without the child being present?
Many banks require the child to be present when opening an account, especially minors, but some institutions allow parents or guardians to apply online or in person without the child. Contact your chosen bank to confirm their policy.
Does a child’s savings account affect financial aid eligibility for college?
Savings accounts owned by a child may be considered in financial aid calculations, but typically custodial accounts count as the child’s assets, which can impact aid eligibility more than parent-owned accounts. Consult a financial aid advisor for specifics.
Are savings accounts for children insured like regular accounts?
Yes, savings accounts at FDIC-insured banks or NCUA-insured credit unions are protected up to applicable limits, just like adult accounts, making them a safe place to keep money.
What happens if I want to close my child’s savings account?
You can close the account anytime as the custodian, but it’s best to discuss this with your child and consider transferring the funds to a new account or giving the money to the child when appropriate.
Can my child deposit money into their savings account independently?
Depending on the account type, children may be able to make deposits without adult help, especially in joint accounts or with online/mobile tools. Withdrawals usually require adult approval until the child is of age.