One of the best ways to teach this is to open a child savings account and have them start building the habit of saving from an early age.
There are several banks and financial institutions that offer child savings accounts, and some of our best online banks even pay a high interest rate. In this article, we’ll break down what a child savings account is, the benefits of having one for your child, and the exact steps you need to take to open one.
Key Insights
- A child savings account is a joint account with a parent or guardian that allows you and your child to save money and earn interest.
- Teaching your child to save money helps build financial literacy early and creates habits that carry into adulthood.
- There are multiple child savings accounts, including joint accounts, custodial accounts, and educational savings accounts.
What Is a Child Savings Account?
A child savings account is a type of bank account opened by a parent or guardian for a child—allowing you (and your child) to deposit money and potentially earn interest.
Most child savings accounts at banks are joint accounts—meaning you and your child are joint owners of the account, but you (as the parent or guardian) maintain full control of the funds.
What Are Some Features of Child Savings Accounts?
Most child savings accounts don’t have fees, offer parental controls, and pay some interest. However, the rates aren’t usually as high as a regular high-yield savings account. For example, Capital One offers 2.50% APY on its child savings accounts but 3.80% APY on its performance savings account.
How Are Child Savings Accounts Managed?
Child savings accounts can be managed through your bank’s mobile app or online through your bank website. Kids may also have access through a mobile app, but parents must maintain complete control of the accounts and the funds.
Other Types of Child Savings Accounts
In addition to joint bank accounts, you can open a custodial or educational savings account for your child. These accounts have different rules and limitations compared to a child bank account.
Custodial Account
A custodial account allows you (the parent or guardian) to open an investment account or bank account in the child’s name. The funds deposited into this account are considered a gift and legally become your child’s property.
This means you can no longer access the funds for yourself, but all money in a custodial account must be used directly for the child’s benefit.
Education Account
You can open an educational savings account for your child to help them save for college or other educational expenses. The most popular is the 529 savings account—which allows you to deposit funds, invest for growth, and use the money for your child’s education.
These accounts can also be converted to a Roth IRA if your child doesn’t use all the money for school.
Benefits of a Child Savings Account
According to Cornerstone Wealth Consulting Services LLC founder and CEO Jason P. Berube, a child's savings account is both straightforward and impactful in building their future success. Beyond just accumulating money, it teaches children essential early lessons about setting goals, observing their savings increase, and understanding the importance of future planning.
Here are a few advantages to having a child savings account:
- Financial literacy: If your child has a savings account, you can encourage them to save more. Whether they earn from chores or allowance, teaching your kids to set aside money for future expenses will boost their financial literacy.
- Early savings habit: You can teach your kids how to save money at a young age with a child savings account. This habit will stick with them when they get older, helping build financial security into their future.
- Growth potential: Child savings accounts can earn monthly interest, helping your child watch their money grow over time. This hands-on experience with compound interest shows them how savings can multiply when left untouched, encouraging smart saving habits.
- Parental control and security: Most child savings accounts are joint accounts where you (the parent or guardian) can see all transactions and lock down the account if needed. This gives parents peace of mind and keeps kids safe from scams and other financial threats.
- FDIC insurance: Most kids' savings accounts offer FDIC insurance, which protects the money in the account up to $250,000 per depositor.
Steps to Open a Savings Account for a Child
Here’s how to open a savings account for your child:
- Research your options: Compare multiple child savings accounts from banks and credit unions. Find one that offers no fees, high interest rates, and an easy-to-use mobile app.
- Gather required documents: To apply for the account, you’ll need to provide some personal information about you and your child. This may include your child’s Social Security number, birth certificate, proof of address, your Social Security number, and a valid Photo ID.
- Visit a bank or apply online: You can open a child savings account online by completing an application, submitting the required documents, and transferring money from your checking account. If you want to open an account in person, you may need to schedule an appointment and complete paperwork by hand.
- Fund the account: Most child savings accounts don’t have account minimums, but you’ll need to connect your existing bank account to transfer funds into the child savings account. This is usually done through the banking website or mobile app.
- Set up account features: Once the account is opened, you’ll want to log in and set up the account controls and features you want. This might include enabling parental controls, setting up automatic deposits, and downloading the mobile app to manage the account.
Choosing the Right Savings Account for Your Child
To find the best savings account for your child, compare options from different financial institutions. Several high-yield savings accounts, like American Express National Bank (3.80% APY), SoFi (4.00% APY), and Barclays (4.25% APY), offer competitive rates with no monthly fees. When comparing accounts, consider:
Interest rates and fees: To maximize growth potential, look for high interest rates and no maintenance or overdraft fees. High-yield savings accounts typically offer better rates than traditional child savings accounts.
Minimum deposit requirements: Choose an account with no or low minimum balance requirements. Many online banks like American Express and SoFi don't require minimum deposits.
Accessibility and withdrawal limits: Understand how to access funds (Zelle, ATM card, debit card) and check withdrawal restrictions. Some accounts limit monthly withdrawals—look for ones with fewer restrictions.
Additional perks: Some accounts offer educational tools, savings goal trackers, and other features through their mobile apps to help teach financial literacy.
Tips for Encouraging Your Child to Save
With a new savings account for your child, it’s important to encourage your kid to start putting money into it. Here are a few ways you can encourage them to save:
Set goals together: Kids are motivated by goals, so working with your child on a savings goal (such as a new video game or their first car) can help encourage them to save more.
Use visual tools: Visual examples can help your kids learn faster. Showing them a savings goal chart or a graph of how compound interest works will help them see the value of saving money consistently.
Reward savings milestones: Saving money can be boring, so it’s important to celebrate along the way. For example, giving people a new toy or gadget when they hit a savings milestone can motivate them to save.
Teach by example: Children learn by watching their parents' habits. When you actively save money and discuss your financial decisions, you show that saving is a priority and help instill these values in your child.
FAQs
What age can a child have a savings account?
You can open a joint savings account for your child from birth. For children under 12, most banks require a parent or guardian to be the joint account owner.
How much should I put into my child's savings account?
There's no set amount—you can deposit whatever works for your family. Many parents tie savings to chores or small jobs, helping children earn and save their own money.
Can the child withdraw money independently?
While children may receive an ATM card with their savings account, parents and guardians have control. You can restrict ATM card usage or freeze the entire account if needed.
Do I pay taxes on my child's savings account?
For joint accounts, you'll need to report any interest earned on your tax return. With custodial accounts, interest belongs to your child—they'll need to report it if it exceeds the unearned income limit ($2,600).
Does a child's savings account affect financial aid?
Yes, but most child savings accounts are joint accounts that count as parental assets, which is better for financial aid than custodial accounts that count as the child's assets.
Conclusion
Opening a savings account for your child has many benefits, helping them learn the habit of saving before they have their first job. Most accounts offer no fees, decent interest rates, and have parental controls to keep the account secure. It’s a good idea to compare online savings accounts to find the best child savings account for your needs.
