After reading the title of this article, you may be a little confused. A child opening their own savings account? Well, not exactly. Many adults, including parents and grandparents, like to open a savings account for their child or grandchildren. They want the child at hand to understand finances and have a nice bit of cash for the kid as they grow into adulthood.
The money may go to college tuition, a down payment on a car, or even rent while they go to school. Starting a savings account for a child is a great idea, and finding the right bank to open an account with should take careful thought and consideration.
Why Should I?
You may be asking yourself “why in the world would I want to open a savings account for my child while they are still very young?”. Well, it’s easy to forget to teach your kids good money management skills. While children are growing up, teaching them financial responsibility through a savings account is simple.
A portion of their birthday money, Christmas money, allowances, and other means of income your child may receive throughout adolescence should be placed into the savings account with their knowledge. Teaching them to put away money rather than spending it all will make them financially responsible in the future.
The Consumer Financial Protection Bureau conducted a study that shows that if a child has a savings account in their youth, they are three times more likely to go to college and are four times more likely to graduate. Even if the account had a small amount of money in it, the results came out the same.
Being able to teach your kids banking skills through the account is also possible. Using an ATM or making a deposit is still a mystery today to some adults.
Let the Child Contribute
By giving the child some access to the account, you will find it easier for them to want to deposit their cash into the account. Teaching them simple addition and subtraction through withdrawals and deposits will make them feel a bit more in control of what is going on with the account and help them practice their math skills.
When they see their savings amount rising, they will begin to understand what depositing money does. Showing them how interest works, once they are at an age where they can understand it, will show them how their money can add up over time and will encourage them to keep it in a bank for longer periods of time.
Making the visit to the bank a fun experience rather than a drag will fortify their desire to visit the bank as an adult. Many children, and adults, feel that visiting a bank is boring. Showing a child otherwise at an early age prevents them from dreading visiting a bank early on.
What You Should Look For?
When deciding what bank you should open your child’s account with, there is a decently sized list of criteria to look for. First and foremost, look at the fees the bank charges. A bank with no minimum balance and no monthly fees is a good option for a child since they may not be making large deposits routinely.
The interest rate is also important. Finding a high interest rate that will let your child’s money multiply is ideal. Online banks and credit unions typically offer higher interest rates than a traditional bank. Keep in mind, however, a traditional bank and a credit union will offer the interpersonal skills you are trying to teach the child while an online bank will not.
Finding a bank with physical and online aspects should also be of priority. Getting to interact with tellers and other employees while getting to monitor their account at home is beneficial to financial lessons that a child’s bank account will teach them.
Finally, look at how withdrawals must be made. If the bank offers an ATM/debit card, you child will have their own card that can be used to show them that the piece of plastic in their hands is not a magic wand and that the money must be pulled from their account.
How to Open an Account for a Kid
Once you find the right bank, opening the account is the next step. Many states will not allow a minor to have their own account, so you will have to cosign the account and have joint access. You should be able to drop your name when the child gets older and give them full control of the account.
When going to a physical location to open an account, you will need your child’s information and your personal information. Both social security cards will be needed. Check with the specific bank for a list of identification documents for this step. An initial deposit for the account must also be brought with you. Typically, the deposit can either be cash or a check.
Options, Options, Options
If you seem to be having a bit of trouble narrowing down exactly which bank you would like to use, there are many good banks that offer solid accounts for kids.
Barclays Dream Account for Minors has a high interest rate of 1.05% per year and gives bonuses for leaving the account alone for certain periods of time. There are no monthly fees, but a parent must make withdrawals from the account. Since it only has one physical location, Barclay Bank must be handled online.
Capital One 360 Kids Savings Account offers another high interest rate at 0.75% per year. This is another online option that is very user friendly. It has options to track goals and create a long term savings plan with your child.
Wells Fargo Kids Savings Account is a brick-and-mortar option that will allow kids to go in and perform daily banking activities. There are no monthly fees or minimums. The largest drawback, however, is the low interest rate of 0.01% per year. There are many other options out there, but these are just a few of the more popular ones.
Giving a child a savings bond is a great way for them to save money over time. The child will not be able to spend the money right away and it will grow as it matures. A series EE bond, has a set interest rate that will add up every month for a maximum of 30 years. If you let it sit for 20 years, the amount will at least double in value regardless of what the face value of the bond was at the time of purchase.
These types of bonds are purchased at face value. A series I bond is also purchased at face value and can be sold a year later for that same value. The bond will not earn interest until it is 5 years old, but can then earn interest until it is 30 years old. This bond has a set rate while an EE’s interest rate goes with inflation.
The most important part of a bond is letting it mature. Encouraging positive spending habits will prevent your child from wanting to cash in bonds early. Bonds are low risk, low maintenance, and are easy to obtain for your child.
In the End
Opening a savings account for your child is very beneficial to them in the long run. It will teach them money management skills early on in life. You can show them how interest works and how to use bank services. Having their own debit card will teach them that swiping a plastic card does not mean you do not pay for what you buy. Going to a physical location will give them vast interpersonal skills. Gifting them with a bond is another possibility to show them how to manage money.
Either way, showing your children how to be financially sound at a young age will teach them better habits for later in life that will lead to more financially stable lifestyle.