Many parents want to instill good financial habits in their children. Opening a kids savings account can be one way to teach them how to manage their money and introduce them to concepts like interest rates and fees. But which is the best bank to open a savings account for a child? Some factors to consider are the child’s age, level of responsibility and the amount of participation you want to have as a parent. Then it’s a matter of comparing the return your child stands to receive on their money, and any potential bonuses along the way.
The 3 Best Savings Accounts for Kids
|Bank||Min. Deposit||Max. APY||Key Benefit|
|Bank of America||$25||0.03%||No monthly maintenance fee.|
|Capital One||$0||0.60%||Parental control through mobile app.|
|Citizens Bank||$0||0.05%||$1,000 bonus when minimum monthly contribution is met.|
What is a Kid’s Savings Account?
The phrase “best kids savings account” is a bit misleading, because parents are always involved. In most cases, kids can’t open an account on their own, but that depends on state law. Some areas are stricter than others, and different banks may have different policies. Therefore, parents have to think about how the account will function in the child’s life. Is it something they want their little one to use for purchases? Or should it just be a place to put away money for when they reach adulthood? According to financial planner Kirk G. Meyer, this is one aspect they should discuss with the financial institution.
“One of the key features would be accessibility of the minor with regards to the account. In some instances you may not want the minor to have the ability to withdraw funds until they reach a certain age or milestone,” explains Meyer.
So there are two main options: a joint account or a custodial account. In a joint account, an adult and the minor have joint access to the account. The minor may have their own debit card and can make deposits or withdrawals. Either account owner can put limits on the account, for such things like daily cash withdrawal limits.
In a custodial account, the custodian (adult) manages the money in the account for the child’s benefit. All deposits into the account are irrevocable gifts to the minor. These are typically called UGMA or UTMA accounts. The custodian can use the funds in this account, but only for the benefit of the minor. Note that UGMA or UTMA accounts belong to the child, no matter what happens when they get older. So, if you intended the funds to be used for college, but the child decides not to go, the child still keeps the money.
Kid’s Savings Account vs Trust
If you want to set aside money for the benefit of the child, you may be considering a UTMA/UGMA or another instrument entirely: a trust. A trust is a legal structure where assets are managed for the benefit of a beneficiary. A trust allows you to place some conditions on the use of an asset. For example, if you want to restrict access to funds until your child has completed university, or reached a certain age, this is possible with a trust. These kinds of conditions typically aren’t available with a UTMA/UGMA. The child usually receives full access to the funds in a custodial account — but not necessarily a trust — once they reach adulthood.
Savings Account vs Certificate of Deposit
It is possible to go with a minor to a bank and open up a certificate of deposit (CD) in his or her name, but there’s not much benefit in doing that. Unlike savings accounts, CD’s involve penalties for early withdrawals. Moreover, in the current low-interest-rate environment, CDs barely pay more than savings accounts. It’s all fine and good to teach our kids about fiscal discipline, but I don’t imagine that most parents would want their children to be penalized if they need to access some or all of the funds stored in a CD.
Savings Account vs Checking Account
While very young children won’t be able to open checking accounts with a well-known bank, some of the bigger banks do offer checking accounts to youths 13 and older. It’s fine to trust our children, but it’s also smart to ask the bank about setting withdrawal limits on a checking account for a young person. As long as reasonable limits are established, it might not be such a terrible thing for teens to gain experience with old-fashioned check writing along with the other banking skills they’ll need.
The 3 Best Savings Accounts for Kids
Bank of America: Best for low fees
Bank of America offers joint and custodial accounts for children, with a handy table to compare the pros and cons of each. There’s no monthly fee for the joint account, and the $8 monthly fee for the UTMA account is waived as long as the daily balance is $500 or more. For both accounts, other fees are also waived if you maintain over and above a threshold amount in the account. There are no transfer and withdrawal fees as long as you have $300 in the joint account or $20,000 in the UTMA account. When the child turns 18, the savings account becomes a standard Bank of America Advantage Savings account and converts to that product’s fee schedule.
Capital One: Best APY
For a national bank, Capital One offers a high APY for kids’ savings account, topping out at 0.60%. Throughout their childhood and teen years, kids can deposit money into their accounts, monitored closely by parents on the mobile app. Through this app, parents can also set up savings goals and make deposits into the kids’ savings account in lieu of traditional allowances.
Furthermore, the no monthly maintenance fee or minimum deposit makes it easy for parents to set up and account and trust that it’ll serve them well before they reach adult age.
Citizens Bank: Best for bonuses
Citizens Bank offers a nice perk for consistent savers: an additional cash payout when the child reaches his or her 18th birthday. In order to qualify for the bonus, you’ll have to open the account before the child turns 12 and make the monthly minimum deposit after that. The minimum is $25 per month if you start before the child is 6, and $50 per month if you start between the ages of 6 and 12. This may be a great option if you’re on the hunt for a sensible baby savings account that encourages consistent contributions.
The Final Word
If you have further questions about how to open a savings account for a child, start looking at banks and credit unions in your area. They should have answers about access to funds, monthly fees, account security, ownership, and what happens when the child turns 18. You may want to consult with a lawyer or financial planner to determine whether a joint bank account, UTMA/UGMA custodial account, or trust is the best option. When it comes to your child’s economic future, you want to gain insight from as many experts as possible.