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Key Takeaways
- You can open a joint savings account with your child that allows them to save money for the future.
- Most kids’ savings accounts have no monthly fees and include easy-to-use mobile apps and educational resources for your child.
- The best savings accounts for kids offer competitive interest rates on all deposits.
- Children must open a savings account with an adult aged 18 years or older—typically a parent or guardian.
What Is a Kids’ Savings Account?
A kids’ savings account is designed for kids under age 18: The child and a parent or guardian act as joint account holders. Unlike regular savings accounts, children’s savings accounts often come with additional perks such as:
- No monthly account fees
- Low to no opening balance requirements
- Online learning tools to boost a child’s financial education
- Mobile apps so kids can easily view their accounts
Remember that perks vary by bank, so it pays to ask about the specific kid-centric features offered.
Types of Kids Bank Accounts
There are several types of kids’ bank accounts, each with differing features depending on your child’s needs. Here are a few bank account options for kids:
Custodial account. Custodial accounts are a type of bank or investment account you can open for your child. Any money put into the account is considered a gift and owned by your child, but you are the account custodian until your child is an adult. The funds must be used for the benefit of the minor, and ownership is transferred to the minor at the age of majority according to the minor’s state of residence.
Joint account. Joint bank accounts allow you to open a checking or savings account with your child as a joint account owner. This account has fewer restrictions than a custodial account, as your child and you both have equal ownership over the funds within the account. A majority of teen checking accounts and other kids’ bank accounts are set up as joint accounts.
Educational account. Education savings accounts are a type of savings account that may offer tax benefits when saving for college or other educational expenses. The most popular education account is a 529 account, which offers federal and state tax benefits, investment options and the ability to roll unused funds into a Roth IRA (limitations apply).
Should You Choose a Kids’ Savings Account or a Custodial Account?
There are typically two types of accounts you can open for your child: a savings account or a custodial account, and the difference is important. If you open a savings account, you and your child will have joint ownership of the account, and your child will be able to access the funds (with you, the parent, being able to monitor account activity).
If you open a custodial account, also referred to as a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account, money in the account is treated as a gifted asset your child fully owns; funds cannot be accessed directly by the child until the child turns 18 (or the age of majority in their state of residence). Yet using this type of account may complicate your taxes. So unless you have a particular reason for choosing a custodial account, you may want to go with a typical savings account.
What Are Your Goals for Your Child’s Savings Account?
Why do you want your child to have a savings account? There are several good reasons.
- To help your kids learn more about money and finance. Having a savings account can help your child learn about compound interest, different financial accounts and managing money in everyday life.
- To help your children learn more about banking. Your child can learn how to deposit checks, bank online, withdraw cash at a brick-and-mortar bank and more.
- To help your kids develop the habit of saving money earned from an allowance, chores or part-time job. If you are trying to teach your child how to manage their money, save a percentage of their income or use funds for different financial goals, a savings account can make these concepts seem more real in your kid’s mind.
- To save money for a specific short-term financial goal. For example, if your child wants to buy a new video game console or save money for summer camp or a special purchase, they could use their savings account to set aside funds for these specific goals.
Having their own savings account can help your child learn how to set financial goals and make responsible decisions about how to use money. Talk with your child about their savings account before choosing a bank or credit union. Make sure your child is old enough to understand and be curious about saving money.
Ask what questions they have, and use that conversation to guide your search. Having a real savings account of their own can help your child feel special and grown-up. You may even inspire them to learn more about finance and develop better financial habits at a young age.
Should You Use a Kid’s Savings Account to Save for College?
If you want to save for your kids’ college education, a savings account is probably not the best financial vehicle for that goal. Set up a 529 savings plan instead. A children’s savings account typically pays low interest, making it better for short-term savings and smaller amounts.
A 529 plan can help you save for college more aggressively, with a broader range of long-term investment options. Depending on your state, putting money into a 529 plan also may help you get a deduction on your state income taxes.
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What Interest Rate Can You Get on a Children’s Savings Account?
Interest rates have risen over the past couple of years, causing child savings accounts to offer higher rates on deposits than in the past. Some of the highest-yielding kids’ savings accounts include:
- Alliant Credit Union’s Kids Savings Account at 3.10% APY.
- Capital One’s Kids Savings Account at 2.50% APY
- First Internet Bank’s Tomorrow’s Tycoon Account at 0.80% APY
Annual percentage yields are accurate as of February 6, 2024.
These are some of the highest APY rates on children’s savings accounts available from banks and credit unions. However, if you’re interested in a particular credit union’s kids’ savings account, remember that you’ll have to meet the membership requirements to open an account.
Other national banks, including Wells Fargo and Bank of America, offer children’s savings accounts, but the APY rates remain low. Don’t expect to get a high-yield account for your child’s savings. The primary goal of a child’s savings account isn’t to build wealth or generate a substantial return on investment. Rather, it’s to teach kids about money and provide a safe place for your child to watch their savings grow.
What Features Should You Look for in a Kids’ Savings Account?
Along with a decent APY, the best children’s savings accounts offer unique features that help make saving fun for kids. For example:
- Automatic savings plans. Banks may offer an automatic savings deposit plan that lets you transfer a certain amount of money into a child’s account each month.
- Financial education. Some banks offer interactive apps and websites with financial literacy tools that help kids learn about money. For example, Bank of America’s Better Money Habits website helps parents and kids boost their financial knowledge.
- Mobile apps/online banking. Not all banking apps have the same features, but most let you deposit checks and move money between accounts. When choosing a savings account for your kid, be sure to find out what features the bank’s app has—or doesn’t have.
- Savings goals. The Capital One Kids Savings Account lets you create multiple accounts and track different savings goals. For example, you could help your child set up separate accounts for summer camp, an Xbox or a new bike.
- ATM card. Some banks offer ATM cards your child can use to withdraw cash directly from their savings accounts at ATMs.
- FDIC insurance. Your child’s savings account should be FDIC insured, just like any other bank account. Double-check the bank website to ensure it’s an FDIC-insured institution.
These are just a few features of kids’ savings accounts that you may want to look for or ask about. Keep in mind that some banks have more offerings than others.
Pro Tip
Some kids’ savings accounts offer built-in financial courses or lessons to help guide your child toward building good money habits. Look for an account that focuses on financial education to help your child develop skills as they save for the future.
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What Are the Fees and Requirements of a Children’s Savings Account?
Kids’ savings accounts tend to be reasonably simple, but some banks charge a few fees or have different requirements, including the following:
- Minimum opening deposit. Some kids’ savings accounts require low minimum opening deposits of $25 or less. Others require $100 or more. Be prepared to help your child save up if needed.
- Minimum daily balance. Pay attention to the minimum daily balance requirements. Many children’s savings accounts don’t require your child to keep any money in the account, but some might require a minimum daily balance to avoid a fee.
- Monthly maintenance fees. Most children’s savings accounts do not charge monthly fees, but check the details before you open an account.
What Documents Do You Need to Open a Children’s Savings Account?
Most banks will want you to bring at least one of the following documents to open your child’s savings account. The documents should be in your child’s name:
- Birth certificate
- Social Security card
- Immunization records
- School photo ID
- Passport
- Driver’s license (if your child is old enough to have one)
If you’re opening your kid’s savings account with an online bank, you will follow the usual online process for opening an account. However, in this case, a parent or guardian must open the children’s savings account as the joint account owner.
If you’re opening your kid’s savings account with a brick-and-mortar bank, you will typically need to visit your local branch to open the account. Consider taking your child along; the trip can be a fun occasion to help your kid learn more about banking. It might even feel like a rite of passage: Your child is joining the grown-up world of banking.
What is the Minimum Age to Open a Bank Account?
In most states, banks require account holders to be 18 years of age or older. So in the case of children’s savings accounts, a parent and child must jointly hold the account until the child reaches age 18.
What Happens to a Kid’s Savings Account When the Child Reaches Age 18?
Most banks will automatically convert a child’s savings account to a regular savings account when the child turns 18. Depending on your bank, there may be different fees, additional paperwork to sign or other decisions for your child to make. For example, your child might want full control of their account starting at age 18, without their parent or guardian serving as a joint account holder.
Talk with your kids about their overall banking needs as they become legal adults. For example, managing your child’s savings account can be part of a larger discussion about debit cards, credit cards, auto loans or other financial products your child may need as they enter adulthood.
Bottom Line
Opening a children’s savings account can be a wonderful way to introduce your child to the world of banking and personal finance. While banks generally don’t pay high yields on kids’ savings accounts, these accounts can still be meaningful tools to start your kid on a responsible financial path from an early age.
Frequently Asked Questions (FAQs)
Do I have to pay taxes on the interest my child’s savings account earns?
Yes. Income reported on a form 1099-INT is taxable. However, if your child earned less than $12,500 in income from dividends and interest, you can claim your child’s interest earnings on your tax return instead of theirs.
What kind of savings account should I open for my child?
It depends on your savings goal. If you want to teach your child basic money management habits, a children’s savings account will be better. If your goal is to save for a child’s education, you’d likely be better off with a 529 plan or a Coverdell Education Savings Account.
How do I invest for my kids?
When investing for kids, it’s important to think about how the money will be used. If you want to jump-start a child’s retirement savings, you can open a custodial Roth IRA on their behalf. When saving for college, you’ll want to consider an investment account designed for education, such as a 529 plan.
Can I open a 401(k) for my child?
Since a 401(k) plan is an employer-sponsored retirement plan, a parent can’t open one on a child’s behalf. However, you can open a custodial Roth IRA if you want to start your child’s retirement savings early.
What bank account can I open for my child?
Parents can open either a children’s savings account or a custodial account. A children’s savings account lets your child withdraw funds from the account at any time. A custodial account, on the other hand, only grants the child access to funds after they turn 18.
