Do you remember when you outgrew your piggy bank? It could have been because of a glut of birthday money or the unwieldy wad of cash after a summer of mowing lawns. No matter the case, children quickly grow to the point of needing a bank account. Besides providing a safe place to store and access money, bank accounts can teach healthy money habits and are straightforward to open. Since children cannot legally open a savings account, parents or guardians will need to open a custodial or joint savings account for them.
For help saving for your children or with any other financial considerations, consider working with a financial advisor.
Types of Savings Accounts for Kids
Parents generally have two options when opening a bank account for their children. You’ll pick one of the following depending on your intentions for the account and your tax situation.
Savings Account
Like a conventional joint bank account, a savings account will allow you and your child to deposit money and make withdrawals. Parents have complete control of the account, meaning children can’t access the funds without parental permission. Kids’ savings accounts often have an interest rate that incentivizes keeping the balance as high as possible. In addition, many savings accounts provide children with a debit card and online banking at a specific age.
Custodial Account
Custodial accounts, also called Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts, aren’t for daily or weekly usage. Children can’t access funds in the account until age 18. This dynamic introduces tax implications that a savings account doesn’t. For these reasons, custodial accounts don’t have the same regular functionality as savings accounts, and you should only open one if you have specific intentions for the account.
Features to Look for In a Savings Account for Kids
Like other financial accounts, various institutions offer kids’ accounts with different pros and cons. Here are the perks to look for when shopping accounts.
Benefits of a Savings Account for Kids
Once you choose an account for your child, it will provide the following benefits:
Requirements for Opening a Savings Account for Your Child
Children’s savings accounts aren’t as complex as others. As a result, there are only a few conditions you’ll need to meet to open one:
Aside from the account requirements, you’ll also need to provide sufficient identification for your child to open the account. Generally, one of the following should be enough:
How to Open a Savings Account for a Child
Once you have the necessary funds and identification, you can head to the bank with your child. Bring your ID (your driver’s license should suffice) and have both of your Social Security numbers ready, too. At the bank, you’ll submit the information and make the qualifying opening deposit.
What Happens When My Child Turns 18?
When your child turns 18, your bank will turn the account into a typical adult savings account. Some banks change the account for free on your child’s birthday, while others might charge a fee or require signed documentation from your child. Additionally, you and your child may want to discuss whether they should manage the account independently or keep the joint status.
Upon turning 18, your children become eligible for numerous financial services, such as credit cards and loans. Ideally, your guidance and their experience with their bank account will help them understand the fundamentals of debt, interest and budgeting. However, it’s a good idea to have frequent conversations with your child about financial goals to help them stay on track.
Tips for Opening a Savings Account for Your Child
If you’re worried or anxious about opening an account for your child, that’s completely normal – handling money is one of life’s biggest responsibilities. However, creating a bank account is a crucial milestone as your child gets older and learns about money. So, remember these tips as you prepare to open a savings account for your child:
Emphasize Saving Versus Spending
Whether you’re buying a new pair of shoes or tickets to an amusement park, these moments are educational opportunities. You can explain that saving money made it possible to afford your current purchase and highlight how financial goals enrich your life.
Turn It Into an Event
You don’t open a new bank account every day, so help your child get excited! Match the celebration to your child’s personality and proclivities. For example, if they’re a budding entrepreneur, let the first day of business commence with a hefty deposit as a reward for all the hard work. Or, help them save up for a celebratory ice cream afterward as a way to accomplish a first-ever financial goal.
Make Bank Interactions Normal
Your children will likely absorb many of your habits, financial ones included. As a result, you might make a show of depositing a check on your phone or talk about how much money you saved last month by using your bank’s budgeting app. In addition, if you often visit your bank in person, bring your child along to demystify banking and acclimate them to the experience.
Provide Encouragement and Rewards
Just as employers give benefits, such as a 401(k) match, you might implement a system of your own. For example, you could match your child’s monthly deposits or pay your child for extra chores. A reward system can provide an additional reason for them to save. Everyone likes watching one’s bank account grow; your child is no different.
Keep Education Suited to Their Age
A first grader might be excited about opening a bank account, but they might not have the interest to hear about interest rates or certificates of deposit – and that’s ok. Gradually introducing more sophisticated topics as your child ages can help pace their financial learning.
For example, taxes might seem uninteresting until your children earn their first paycheck from their job. Those deductions are a perfect opportunity to discuss Uncle Sam’s cut and give your child a better understanding of how money works.
The Bottom Line
Everyone wants to see their kids succeed financially, and a bank account is an excellent way to lay a foundation upon which your child can build a healthy financial life. Most children’s bank accounts are easy to open and maintain. Plus, you can utilize life experiences and online financial education tools to enhance your child’s financial literacy. Banking is a part of everyone’s life, and starting early can help build your child’s confidence and competence with money.
Banking Tips
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