Can I open a savings account for my kid?

Mom walking her two children home from school, talking to them about kids savings accountsImage: Mom walking her two children home from school, talking to them about kids savings accounts

In a Nutshell

Opening a savings account for your kid may be a great way to start teaching your child about financial responsibility. But you’ll need to decide where to open the account — and understand what happens to the funds for your little ones once they become adults.
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Teaching kids the importance of putting money in a savings account for a rainy day or future goal may instill lifelong savings habits.

So how do you get started? You’ll want to decide on the type of savings account that may be best for your child, evaluate where to open this account and figure out what will happen to the account when the kiddo turns 18.

If you’re looking to sock away thousands for college or to set your kids up for an easy transition to adulthood, a “custodial” account or investment account that you have sole control over might be your best bet. 

We’ll touch on those options in this article — but will mainly focus on kids savings accounts offered by traditional banks, credit unions and online banks where you can deposit money. Read on for how kids savings accounts work, their pros and cons and how to help maximize the benefits of a kids savings account.

Why should I open a savings account for my kid?

Opening up a savings account for your kid can help them learn some of the basics of banking and how to save money. Usually a parent, grandparent or legal guardian can set up a depository savings account on a child’s behalf, and most such accounts require you to be a joint account holder with your child.

This has several advantages. You can help teach them about banking while keeping tabs on their activity. And in some cases, you can stay on as a joint account holder after they turn 18, making it easy to slip some extra cash into the account if needed when they head off to college or take their first steps into the workforce.

Let’s review some things to be aware of when considering kids savings accounts.

Hands-on savings

Many traditional banks and online banks and credit unions offer child, or youth, “depository” savings accounts for general use.

This is a savings account you oversee but that your child can use to make both deposits and withdrawals. Age restrictions on minors’ savings accounts vary — some accounts are for kids under 12 and others are for both kids and teenagers.

Kids savings account perks

We think all kids savings accounts should be fee-free and bear some amount of interest — so you’ll want to shop around. Beyond that, here are some kid-friendly perks you might want to look for.

  • No or super-low opening balance requirement
  • Banking apps that kids can use, with parental controls — and that you can use to deposit money like allowances or birthday or holiday gifts
  • Online, interactive learning tools for kids that teach them about money

Kids savings accounts vs. UTMAs, UGMAs or 529 plans

Keep in mind that traditional, depository savings accounts like those described above are different than investment plans focused on saving for education or “custodial accounts” — both of which are controlled solely by adults and come with different sets of rules.

For example, a Uniform Transfers to Minors account or a Uniform Gifts to Minors account — UTMA or UGMA, respectively — is a custodial account managed by parents or legal custodians. With UTMAs or UGMAs, your kid can’t touch the account until they turn either 18 or 21, depending on the type of account. Another example is a 529 college savings plan, which is an investment account that comes with some tax benefits and also is totally parent- or guardian-controlled.

What you need to open a savings account for your kid

The process and requirements may vary depending on where you open the account. Some banks and credit unions require that you visit a physical location to open a savings account for your child while others let you apply for the account online.

Here’s what you should have on hand when you’re ready to open one.

  • Your kid’s identification info — The bank or credit union may accept a Social Security card, birth certificate, passport or immunization record for identification. 
  • Your identification info (or that of a guardian’s) — To open an account, you may need to be an existing customer or member of the bank or credit union. Or you may need to provide identifying information, such as an address, Social Security number and phone number.
  • Check, money order or funds to transfer, if needed — You may need to make an initial deposit with a check, money order or a funds transfer from another account.

Pros and cons of opening a kid’s savings account

Not sure if a kid’s savings account is the way to go? Here are some of the pros and cons.

The pros

  • A tool for early financial education — You can use a kid’s savings account to show your children how banking works, how interest works and the importance of saving.
  • An emergency cash stash that kids can access — Some kid savings accounts can be linked to a debit card. This card may come in handy if a child or teen needs cash when they’re on a school trip or visiting a relative and you’re not around. Just be aware that there’s a federal regulation that limits certain kinds of savings debit card transactions to just six per month. Luckily, withdrawals or transfers made at ATMs and transactions made in person at a bank don’t count toward that limit.

The cons

  • Fees and restrictions — Kid savings accounts often have no monthly fee and no minimum balance requirement, but you should double-check the terms and conditions just in case. The bank or credit union may ask for a minimum deposit of $1 to $25 to open the account as well.
  • Withdrawal limits — Like adult savings accounts, kid savings accounts allow you up to six transactions of a certain type per month. This limits how often you can transfer money between accounts or the number of times you can make withdrawals, for example. If you go beyond the six transactions, you may get hit with an excessive-transaction fee. If you plan to transfer money in and out of the account fairly regularly, a kid’s checking account that doesn’t have a transaction limit may be the better option.

If you’re looking for more freedom, you may want to evaluate whether a savings account is the way to go. Sometimes, opening up a checking account in your kid’s name may be a better fit for your situation.

Best practices for your kid’s savings account

After opening your kid’s savings account, here are some recommendations on how to put it to good use.

Set savings goals. Help your child choose a savings goal, show them how much they need to save incrementally to meet that goal and then monitor the savings account balance together.

Schedule automatic transfers. Set up a weekly transfer into the account of the allowance they earn from chores. This combines two financial lessons into one — it teaches kids how to work for money and how putting away money consistently grows their savings account.

Explain how fees and interest work. Read through the terms of the savings account and explain the fees and balance requirements associated with maintaining the account. A full explanation of how the interest rate works and what Annual Percentage Yield means may have to wait for a few years, but you can discuss the basic principle — money sitting in their savings account earns money. You can show them how much the account earns whenever interest is paid out.

How to transition your kid’s savings account

When your baby turns 18, your bank or credit union may automatically transition the kid savings account to a standard savings deposit account.

You’ll want to let your newly minted adult know this also means the bank considers them responsible for the terms and conditions or fees associated with the account.

Next steps

Opening a kids savings account can be a great way to help teach your child about the importance of savings. It can also help encourage lifelong saving habits. As you shop around, consider interest, fees, and any extras like online access to educational tools or the ability to do some banking tasks independently.

Once you and your child open an account, make sure to check in with your kid periodically about their savings progress, goals and spending habits.

About the author: Taylor Medine is a freelance writer who’s covered all things personal finance for the past seven years. She enjoys writing financial product reviews and guides on budgeting, saving, repaying debt and building credit. … Read more.