What type of savings account for child
Short answer
A good savings account for a child is usually a custodial or kids’ savings account opened and managed by a parent or guardian until the child reaches adulthood. These accounts offer low minimum balances, minimal fees, and educational features to teach children about saving money, helping families build good financial habits early on.
What is a savings account for a child?
A savings account for a child is a type of bank or credit union account created specifically to hold money for a minor. Since children under 18 generally cannot open accounts on their own, a parent or guardian opens the account as custodian and manages it until the child becomes a legal adult. The account aims to provide a safe place to save money, earn interest, and introduce kids to financial responsibility. Unlike regular adult savings accounts, children’s accounts often have lower minimum deposit requirements and no monthly fees to encourage saving without financial burden.
For example, a children’s savings account might require only a $5 initial deposit and allow deposits as small as a dollar, making it accessible to families of all income levels. The money saved is protected and insured by the bank, giving peace of mind that it will be available when needed. Additionally, these accounts are designed to be simple and user-friendly, often accompanied by educational resources or tools to make saving fun and engaging for kids.
How does a child’s savings account work?
When a parent or guardian opens a savings account for their child, they deposit money into the account and oversee all transactions until the child reaches legal age. The account earns interest, which is the bank’s way of paying the account holder for keeping money deposited. For instance, if a parent deposits $100 at the beginning of the year into a child’s savings account with an annual interest rate of 1%, after one year, the balance would be $101. This interest is typically compounded, meaning the money earned also earns interest over time, helping the savings grow faster.
Parents can add money regularly, such as from allowances, birthday gifts, or small earnings, teaching children how consistent saving leads to growth. For example, depositing $10 monthly into the account not only increases the balance but helps children see their money’s progress. Withdrawals are usually limited, encouraging patience and long-term saving habits. When the child reaches the age of majority (often 18 or 21), control usually transfers to them, allowing independent management.
Why does a child’s savings account matter for parents and guardians?
Opening a savings account for a child matters because it sets the foundation for lifelong financial literacy. Parents can use the account as a tool to teach concepts like earning interest, budgeting, and goal-setting in a practical way. For example, a parent might say, “Let’s save for a new bike. Every time you add money to your account, you’re closer to buying it.” This tangible lesson helps children understand delayed gratification and the value of saving.
The account also provides a secure place for money meant for the child’s future—whether for college, a first car, or other important expenses. It protects funds from being spent impulsively and helps avoid lost cash. Additionally, by involving children in managing their savings, parents help build confidence and responsibility around money. Some accounts even offer tracking tools or apps that show how deposits and interest grow, turning saving into a fun activity.
What types of child savings accounts are available?
Several savings account types work well for children, each with different features:
- Custodial Savings Accounts: These accounts are opened and controlled by a parent or guardian until the child reaches adulthood. Funds legally belong to the child but are managed by the custodian. They often have low minimums and no monthly fees. These accounts protect money and teach saving basics.
- Joint Savings Accounts: Some banks allow joint accounts where both parent and child have access. This setup lets children learn about balances and transactions firsthand but requires parental oversight to prevent misuse.
- Kids’ Savings Accounts: Designed specifically for minors, these accounts usually offer educational resources, no fees, low minimum deposits, and easy access. They encourage saving habits with features such as reward programs or goal-setting tools.
- Youth Certificates of Deposit (CDs): CDs pay higher interest in exchange for locking money in for a fixed term. Parents might use CDs for long-term goals like college savings, but these accounts limit withdrawals and aren’t ideal for everyday saving.
- 529 College Savings Plans: Although not a traditional savings account, 529 plans are tax-advantaged accounts designed for education expenses. They provide a way to save more strategically for college but have different rules on deposits and withdrawals.
Deciding between these depends on the child’s age, family goals, and how much control parents want. For example, a parent saving for college might choose a 529 plan, while one focusing on teaching saving habits might pick a kids’ savings account.
What terms are often confused with child savings accounts?
Parents can confuse several terms related to child accounts:
- Checking vs. Savings Accounts: Checking accounts are for regular spending with unlimited withdrawals, while savings accounts are meant to keep money safe and earn interest, with limited withdrawals to encourage saving.
- Custodial Accounts vs. Trust Accounts: Custodial accounts are simpler, transferring control to the child at adulthood. Trust accounts are more complex legal arrangements often involving a trustee and specific conditions on how money can be used.
- Prepaid Debit Cards for Kids: These cards let kids spend money loaded by parents but do not earn interest or promote saving. They function like spending accounts, not savings accounts.
- Education Savings Accounts vs. Savings Accounts: Education savings accounts, like 529 plans, have tax benefits but stricter use rules, while savings accounts are flexible but don’t offer tax advantages.
Clarifying these terms helps parents pick the right tool for their child’s financial education and savings goals.
How to choose the best savings account for your child?
Choosing the right savings account for a child involves comparing features carefully. Here’s a checklist parents can use:
| Factor | What to Look For |
|---|---|
| Minimum Deposit | Low or no minimum to start saving easily |
| Fees | No monthly maintenance or service fees |
| Interest Rate | Competitive rates help savings grow over time |
| Access and Control | Parent-managed with clear rules on withdrawals |
| Educational Features | Tools, apps, or rewards that encourage saving |
| Safety | FDIC or NCUA insurance to protect deposits |
| Convenience | Online/mobile access for easy deposits and monitoring |
For example, if a parent wants to encourage a 10-year-old to save birthday money, a kids’ savings account with no fees, low minimum deposit, and an app showing progress could be ideal. On the other hand, if saving for college is the goal, exploring 529 plans might be more appropriate.
Parents should also check if the bank requires in-person setup or allows online account opening. Many institutions also offer automatic transfer options to help make saving regular and automatic.
What steps should you take to open a savings account for your child?
Opening a child’s savings account typically involves these steps:
- Collect Necessary Documents: Usually, the parent’s government-issued ID, the child’s birth certificate, and the child’s Social Security number are required. Having these ready speeds up the process.
- Research Financial Institutions: Look at local banks, credit unions, and online banks for child-friendly accounts with favorable terms.
- Compare Features and Fees: Use the checklist above to choose the best fit for your family’s needs.
- Visit the Bank or Apply Online: Some banks require a visit to open the account; others allow online applications. Ask if the child needs to be present.
- Make the Initial Deposit: This may be as low as $5, depending on the bank.
- Set Up Account Access: Establish online or mobile access, set up alerts, and consider automatic transfers from your checking account.
- Discuss Saving Goals with Your Child: Explain why you’re opening the account and what you hope to save for, engaging them in the process.
For example, parents might say, “We’re opening this account so you can save for your first bike. Every time you put money in, you’re one step closer.” This helps children connect saving with goals, making the process meaningful.
How can parents teach saving habits alongside the account?
Having a savings account is just part of teaching money skills. Parents can turn saving into a practical lesson by:
- Setting Clear Goals: Help children choose a goal—like saving $50 for a game—and track progress together.
- Explaining Interest Simply: Use phrases like, “The bank pays you a little extra money just for saving.”
- Making Regular Deposits Together: Let children deposit part of their allowance or gifts, showing how saving consistently adds up.
- Using Visual Tools: Charts, jars, or apps that track deposits help make savings progress visible.
- Encouraging Patience: Praise waiting for the goal instead of spending impulsively.
- Teaching Budgeting: Divide money into three jars or envelopes: spending, saving, and sharing. This helps kids learn to balance different uses of money.
- Celebrating Milestones: When the child reaches a savings goal, celebrate by letting them pick the reward or use the money responsibly.
For example, a parent might say, “You saved $25 toward your $50 goal! Let’s keep going and watch it grow.” This positive reinforcement motivates continued saving.
Frequently asked questions
Can a child open a savings account on their own?
In most cases, children under 18 cannot open savings accounts alone. A parent or guardian must open a custodial or joint account and manage it until the child reaches legal age.
What happens to the money in a custodial account when the child turns 18?
Control of the account typically transfers to the child once they reach the age of majority (18 or 21, depending on the state). At that point, they can manage and withdraw funds independently.
Are kids’ savings accounts insured?
Yes. Most savings accounts at banks are insured by the FDIC, and accounts at credit unions are insured by the NCUA, protecting deposits up to the insured limits.
How often can money be withdrawn from a child’s savings account?
Savings accounts generally limit certain types of withdrawals to encourage saving, often up to six per month, but rules vary. Parents should check with their bank on specific withdrawal limits.
Can a child earn interest on a savings account?
Yes. Most savings accounts pay interest on the money saved. While rates are usually low, this helps teach children that saving can grow money over time.