One of the best ways to introduce children to financial responsibility is by opening a savings account for kids. Teaching them about money from an early age is crucial for building strong financial habits.
This helps them understand the importance of saving, budgeting, and financial planning while providing a safe place for their money to grow.
In this guide, we will explore the different types of bank accounts available for kids, the benefits of opening a savings account for them, the requirements to open one, and a step-by-step process to ensure you choose the best option.
Types of bank accounts suitable for kids
There are several options when it comes to banking for kids, but the two most popular choices are kids’ savings accounts and custodial accounts. Each has its own features and benefits.
Kids’ Savings Account
A kids’ savings account is a bank account designed for minors, usually managed by a parent or guardian.
These accounts typically have no monthly fees, low or no minimum balance requirements, and may come with features that help children learn financial responsibility.
Some banks, such as Chase, Wells Fargo, and Alliant Credit Union, offer savings accounts specifically for minors. These accounts often include financial education tools, allowing kids to track their savings and set financial goals.
Custodial Account
A custodial account, also known as a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account, allows parents to save and invest on behalf of their children.
The funds legally belong to the child but are managed by the parents until the child reaches adulthood.
Custodial accounts can hold more than just cash—they can also include investments like stocks and bonds.
They are great for long-term savings goals, such as college tuition. However, when the child reaches adulthood, they gain full control over the funds.
Why open a savings account for kids?
Opening a savings account for kids offers several benefits:
- Teaches financial education – Having a savings account helps children understand how money works, including concepts like interest, deposits, and withdrawals.
- Encourages good financial habits – Regularly saving money teaches children the value of patience and delayed gratification.
- Provides a financial advantage – The earlier a child starts saving, the more they can accumulate for future expenses, such as college or a first car.
- Safe and secure savings – Unlike piggy banks, money in a savings account is protected from loss or theft and can even earn interest over time.
What is needed to open a kids’ savings account?
To open a savings account for kids, you typically need the following:
- Parent/guardian identification – A government-issued ID (driver’s license or passport).
- Child’s identification – Social Security number or birth certificate.
- Proof of address – A utility bill or lease agreement.
- Initial deposit – Some banks require a small deposit to open the account.
Different banks may have slightly different requirements, so it’s always a good idea to check with your chosen financial institution before applying.
How to open a savings account for kids
When opening a savings account for your child, several factors should be considered. Choosing the right account ensures that your child has the best possible financial start.
1. Choose a Bank with Easy Online Access
A bank with a user-friendly online platform makes it easier to monitor your child’s savings account.
Features like mobile banking, transaction alerts, and financial tracking tools can help both parents and kids keep an eye on their savings.
For example, Chase offers Chase First Banking, an account for kids that allows parents to monitor and manage their child’s spending.
2. Look for Banks That Offer Financial Education
Some banks provide financial education programs designed to teach kids about money management.
These programs include online courses, savings calculators, and interactive tools to encourage good financial habits.
3. Compare Interest Rates
Interest rates on savings accounts vary widely. Look for banks that offer competitive rates to ensure your child’s money grows over time.
Some credit unions offer high-yield savings accounts for kids, which can significantly boost their savings.
For example, Alliant Credit Union offers a kids’ savings account with an annual rate of 3.10%, much higher than the national average for savings accounts.
4. Avoid Fees
Many banks offer fee-free savings accounts for kids, but some may have hidden fees, such as monthly maintenance fees or transaction fees.
Be sure to read the fine print and choose an account that won’t reduce your child’s savings with unnecessary charges.
5. Consider Long-Term Savings Goals (College Savings)
If you’re planning for long-term savings, consider alternatives like a 529 College Savings Plan, which allows for tax-free growth for educational expenses.
Custodial accounts are another great option for building long-term wealth for your child.
6. Choose an Account with Parental Controls
Parental monitoring is an important feature to consider. Some banks allow parents to set withdrawal limits, enable spending alerts, and oversee account activity to ensure responsible financial behavior.
For example, Greenlight and GoHenry offer savings accounts with built-in parental controls, making them great options for teaching kids financial discipline.
Opening a savings account for kids is an excellent way to introduce financial responsibility at an early age.
Whether you choose a traditional savings account, a custodial account, or a long-term investment option, starting early can make a big difference in your child’s financial future.
By choosing the right bank, avoiding unnecessary fees, and ensuring your child learns the value of saving, you set them up for a lifetime of financial success.
Ready to open a savings account for your child? Explore the best savings accounts today and take the first step toward securing their financial future.
Looking for a suggestion? Check out our guide on the best personal finance courses to improve your financial knowledge!
