Starting a savings account for your child is one of the best gifts you can give them. Financial literacy isn't something that is mandatory to teach in schools, so it's essential that parents and other loved ones make space for it at home.
When I was a kid, my grandfather took me to the bank and opened a savings account in my name. Every few weeks, he'd take me back to the bank so that I could deposit whatever I had managed to save.
I remember having a savings passbook. Each time I went to the bank, the teller would stamp my new total balance in the book and slide it back to me. I cherished that book. Even though I didn't know what I'd use that money for, I understood that I had money and that having money was a good thing.
Why Kids Need Savings Accounts
Establishing the importance of saving early on in your child's life means they have a better financial foundation on which to stand as adults, as well as to give them the chance to start saving for significant milestones earlier than their peers.
For example, say you open a savings account for your 10-year-old, and they save half of their birthday and holiday money gifts for the next four years. Then they pick up a few babysitting or lawn mowing gigs at 14 before working 10 hours a week at a local grocery store at age 16. Throughout all of this, if they continue to save half of their earnings, they'll have a solid little nest egg by the time they hit 17. Then they can use this money to help buy a car or to jumpstart their college education costs.
And it all started with the opening of that one savings account.
A savings account is a way to teach your child throughout their teen years how to save, how savings compound and that they can work toward long-term goals instead of focusing on short-term validation.
With the rising cost of living, housing and education in the U.S., teaching children how to save is also becoming less optional. Certain private universities already cost $60,000 a year. And some estimates put the cost of college at private universities at $100,000 by 2030.
If your child learns the power of saving early on and participates with their own money, they'll find it easier to navigate that college sticker price.
This financial literacy becomes all the more important if you have more than one child. Making sure your entire family has a solid financial footing to stand on concerning both education and savings should be a goal for all parents.
Recommended Savings Accounts for Kids
1. Capital One
The Kids Savings account from Capital One comes with no fees, no minimum balance, and a 1% interest rate. You can also set goals for the savings account, so your child has a hard number to be working toward each time they make a deposit. And you can link your account to theirs for added oversight. This account is for anyone under 18.
The Kids Savings account from Capital One is an excellent option for parents who want an online bank experience and who have specific goals for their children's savings account. This account would work well if you were trying to get your kids to save for their college education, for example.
2. TD Bank
TD Bank has a product called the “Simple Savings” account that's designed for people under 18 or a college student under 24. This account has a 0.05% APY, which is relatively low. The account comes with a $5.99 monthly fee, but it's waived if the account holder is under 18, making this appealing as a kids' account. The fee is also waived if you maintain $300 in the account at all times.
And TD Bank offers periodic savings incentives for your child, such as a summer reading program. Kids from kindergarten through fifth grade can earn an extra $10 in their Simple Savings account by reading ten books and bringing a list to a TD Bank branch.
3. USAA Saving Bank
The USAA Savings Bank serves current and former members of the military and their families. If you qualify for an account, this could be a good option for your child.
You can set ATM withdrawal limits for your kid's account. This account comes with no minimum balance and no monthly service fees. And you need only $25 to open the account.
What's interesting about this savings account is that it comes with a sliding APY scale; the more money in the account, the higher the interest rate you earn. Accounts with less than $1,000 earn 0.09%. Accounts between $1,000 and $9,999 earn 0.10%. And accounts with $10,000 plus earn 0.15% as of December 12, 2018. This kind of scale can act as motivation for saving more since you can show your child how their earnings grow with their savings rate.
4. Ally Bank
Ally Bank is beloved by personal finance nerds because of its high-interest rate: currently 2%. Ally is an online-only bank, and the low overhead from not having to operate brick-and-mortar branches means more savings for you. There is no minimum balance requirement and no monthly fees. And there is customer support 7 days a week from 7 am to 10 pm (Eastern Time) if you need to reach out.
Although Ally doesn't have a child-specific savings account, it is a bank that your child can grow with. Its high-interest rate will give your child a chance to see their money grow more quickly than at other banks. And there will be no need to switch account types when they turn 24, as there is with TD Bank.
5. Wealthfront Cash Account
Wealthfront might be better known for its robo advice services, but its savings account is worth noting. It doesn't have a child-specific account, but you can easily set one up for your child in your own name. Its interest rate isn't as high as the other savings accounts we mention, but it makes up for that with its ease of use. It also is FDIC insured up to $1 million, thanks to the fact that it spreads out your money between four banks. With this account, your kids future funds should be secured for years to come.
I know you want to set your child up for lifelong financial success. That means educating them about how money works as early as you can, and picking the right savings account is a large part of that.
Which account is right for you is a personal decision. Ask yourself these questions to get started:
- What is the main point of this account?
- Do I want my child to set savings goals for this account?
- How involved do I want my bank account to be (i.e., do I want to link my checking account to this savings account?)
- Do I want a brick-and-mortar location, or is online best for us?
Did you have a savings account as a child? What do you want to teach your children about money? Share in the Comments section below.