If you are in the market for a savings accounts for kids, you may also want to consider a checking acccount, which can go even further in helping kids and teens to manage and save their money.
Methodology: How we picked the best kids savings accounts for kids
We analyzed nearly 100 financial institutions and looked for the best savings accounts for kids. We focused on kids savings account that had low monthly fees, good interest rates, and a low minimum opening balance. Then we also checked for kids savings that offer online banking and money management learning tools for kids.
Once a child gets older, accounts that can allow for checking, a debit card, and credit cards are also useful products and services that help build financial knowledge.
What to look for in a savings account for kids
The best savings accounts for kids look a lot like the ideal savings accounts for adults. Such accounts have a low minimum opening deposit requirement, low required minimum balance, few or no monthly fees, and good interest rates. Even better are accounts that include interactive teaching tools. These are useful for parents, as they allow them to guide kids with money management and developing a savings habit.
Here is a quick summary of what to look for in the best kids savings accounts.
Good interest rates (APY)
One of the best things about opening a kid's savings account is the opportunity to teach your child about financial building blocks like compound interest. This is easy to demonstrate with savings accounts that earn interest and have a good APY.
The best kids' savings allow you to teach your child about APY. This refers to how much interest your child's account will earn each year, including compounding interest. You can explain to your child that the higher the interest rate, the more the account will earn. Just make sure to read the fine print regarding the APY to see if there are any requirements such as maintaining a minimum balance.
Low fees or fee-free
Chances are your little tyke will be filling the account with hard-earned allowance money. Even if you deposit funds into the account, you want a savings account that doesn't eat up savings with monthly fees. Look for savings accounts with no monthly service fee, if possible, or low fees.
How fees may impact your child's savings account
Keeping in mind that a child's savings is likely to contain a modest amount of money, it's important that what your child does have in savings isn't eaten up by fees. Here are some ways that fees can drain your child's account. Try to avoid the following when choosing a bank and account.
Monthly maintenance fee
A monthly fee just to have a child's savings account may take a big bite out of the savings. The best savings accounts minimize maintenance fees. Look for a credit union or bank account that avoids a monthly maintenance fee. Often such fees can be avoided if your child makes at least one deposit each month. You may also be able to avoid maintenance fees if you have other accounts at the bank. You can often get a package deal.
Excessive transaction fee
By law, savings accounts limit the number of withdrawals and transfers that can occur each month. The limit is six per month but excludes ATM withdrawals and transfers. See to it that your kids account doesn't charge for what are known as excessive transactions. Such fees will quickly eat into savings.
Low minimum opening deposit
A kid's savings account is likely to start out small. That makes a low minimum opening balance a necessity. Check for an account with a low minimum opening deposit requirement. For instance, find a bank that will open a custodial account with as little as $5-$10. That way your son or daughter can begin saving as soon as possible.
Low minimum balance requirements
Savings accounts often come with minimum balance requirements. To open an account or avoid fees, the account must maintain a certain amount of money. Ideally, it's best if the minor savings account has no minimum balance requirement or at least a low minimum balance requirement. Keep in mind that the more options the better when it comes to the account balance.
If you are banking at the same place as your child's account, you may be able to get any fees waived as long as you keep an account at the financial institution. This can be a good way to keep fees and rates down or free for the child's joint savings account.
Accessibility via online banking
A savings account that allows your child to easily view the balance and earned interest is best. That way the account and savings in general stays top of mind. Cellphone apps make it easy to check.
Opportunity to set up an automatic savings plan
A kids savings account is a good way to teach kids to make saving automatic. Look for a bank that offers the ability to make a deposit automatically. Set up a plan for savings with your child that includes regular deposits. For instance, if your child gets allowance on Fridays, consider setting up plan to automatically transfer money into the account. If your child doesn't yet have a checking account, have the money transferred from your account, then pay your child the allowance minus the amount of money that was automatically deposited. Anything you can do to teach your child good banking and financial habits today will help make a difference tomorrow.
Teen checking account included
Depending on when you open your kids savings account, at some point you will want to add a teen checking account to the banking experience. This will give your child more practice with money management. A debit card at some point will also be a good addition to your child's money education. Before you allow a debit card or credit cards ensure that your minor has shown respect for money and an understanding of the importance of savings.
Helpful learning tools
Giving your child a strong financial education is easier when you have helpful educational tools. The younger the child, the more helpful this can be. Look for a financial institution that features interactive learning programs such as financial education apps. Such programs make savings and learning about money fun.
Kids savings account: pros and cons
Opening a kids savings account is easy to do and can teach important lessons, but that doesn't mean it's the best decision for you and your child. It's important to consider both the benefits and drawbacks of having a kids savings account for you and your child before applying.
Here's a list of the benefits and drawbacks to consider before opening a kids savings account.
Pros of kids savings account:
- Teaches kids how to save money
- Provides a headstart on long term savings
- Enables kids to practice managing savings
- Good introduction to having a checking account
- Teaches about compound interest
- Good precursor to learning how to handle credit cards
- Allows parents to teach about the value of establishing good credit
Cons of kids savings account:
- Some kids may be too young to manage a savings account
- Monthly bank fees may eat into a child's savings account
- It can be difficult to find fee-free bank accounts
- The minimum required opening deposit may be high
- A minimum balance may be required or there are monthly penalties
Steps to Opening kids savings account
Children under the age of 18 aren't able to sign the legal documents necessary to get a savings account. That means that as the parent, you need to open a custodial account with your child. When the child comes of age, you may transfer the savings account to them. This is generally an easy process that takes just a few minutes to complete.
A custodial savings account is officially in the name of your child. However, you as the custodian have complete control of the account. Once your minor reaches 18-21 years old, depending on the state, your child officially can become owner of the account. Up until the minor is of age, you can spend funds in the account.
UGMA/UTMA joint account
You will need to be an account holder on your child's savings account. A custodial account is a joint bank account known as either a UGMA (Universal Gifts to Minors Actor) or a UTMA (Uniform Transfers to Minors Act) savings account. Both of these types of bank accounts make it possible to hold savings in the name of the minor. The parent controls this joint account until the child reaches the age of 18. The minor also has access and can make financial transactions with the account. These savings accounts also allow parents to transfer in funds without having to establish a trust.
Tips to Open an account
Opening a savings account for your child is a simple process. Keep in mind that you will also need to be an account holder if your kid is a minor. That means you will have to provide information about yourself, including your social security number, address, and other personal information. The following are steps to opening a savings account, either online or in person.
Open the bank account together
Once you find the ideal savings account for your child, open the account together. Doing this makes the experience more impactful. When you make a deposit, your son or daughter can see the results by watching the bank balance rise.
Provide a form of identification for yourself and your child
When you open the account, you will need to show some form of ID for your child. This can be a social security card, passport, birth certificate, or school ID with a photo. You will also need to provide your child's social security number for the account.
Make a minimum deposit into the account
Most savings bank accounts require that you make a minimum deposit. You may also have to maintain a minimum balance. Make a minimum deposit and talk about a savings plan moving forward. When kids save on a regular basis this helps make saving a good habit.
Start a savings plan
Help your child start saving on a regular basis. This will teach the value of compound interest. Having a savings plan also teaches your son or daughter about the importance of budgeting. This will teach good financial habits moving forward.
Should you open an online savings account?
Since online savings accounts offer the most competitive interest rates, such accounts may seem like the ideal choice. They do have their drawbacks when it comes to teaching your kid about saving. Here are some pros and cons of savings accounts found online.
Pros to banking online
- Higher APY
- FDIC-insured up to $250,000
- Ability to easily transfer funds
- Lower minimum balance requirements
- Lower fees
- Convenient mobile banking
Cons to banking online
- Difficult, if not impossible to deposit cash. This can be a problem for children, who tend to have cash to deposit.
- No in-person customer service, making the experience less personal for the child.
- Online transfers and deposits and withdrawals take longer than in-person
Pros to in person banking with your child
- FDIC insured up to $250,000
- Personalized service from a banker who can explain financial terminology to your child
- Cash deposits can be easily made at your local branch
- Cash can be withdrawn immediately
- 24/7 access
Cons to in-person banking with your child
- Lower APY and less earned in interest
- Higher minimum balance requirements
- Higher rates and fees
- Limited daytime hours of service
- More time required to visit the bank in person
Use the account to teach kids about money
Once you open an account, help your son or daughter learn all about how to manage money. This can be accomplished by taking the time to monitor the savings account, make deposits, and discuss monthly savings goals.
Open a savings account, rather than checking
For a child's first account, it's advisable to start with a savings rather than a checking account. A savings account is for saving and a checking account is for spending. Ideally, you want to begin your child's financial education with savings. Explain to your child that you can't start spending until you learn to save.
Set up a budget
Teach your child the value of saving on a regular basis by coming up with a plan for regular saving. This could be putting away a portion of allowance or money earned from a job. Saving a certain amount of money per month for a savings account will teach your child how easy it is to put money aside.
So that saving remains a positive experience for your son or daughter, help your child set up a plan for occasionally spending some of the savings. For instance, after a certain savings goal has been met, agree that some money can be removed to buy something special. This teaches that with consistent savings habits financial goals can be met.
When to introduce teen checking
It's usually a good idea to wait until your child becomes a teen before introducing a checking account. By this time, your teen has a good grasp of how it's important to save money before spending money. If you introduce a teen checking account
too soon, your teen may not learn the importance of saving money before spending it. It's important that your teen learn the basics of managing a savings account first.
A savings account lays the foundation for your son or daughter's financial education. After you've taught about consistent savings, you can introduce checking and credit cards. Additionally, at some point, you can teach your child about other savings vehicles, such as money market accounts
Think long-term for financial education
Your child may be young now, but the savings lessons you are giving them are going to last a lifetime. Start early, and your child will like saving and become savvy about handling money from an early age. The lessons learned regarding banking early may impact the short term and are guaranteed to make a difference in the long-term as well.
Teaching your child goods savings habits is a gift that will last a lifetime. Children who learn how to save and understand the value of money early on tend to have better credit scores later in life and use credit cards wisely. Check out SuperMoney's Guide to Complete Savings Accounts
for the best savings accounts.
Alternatives to savings accounts
Savings accounts can be an excellent option if you're looking for a low-risk liquid investment vehicle, but there are alternatives that may provide better terms. If you're planning to open a savings account for your kid, you may also want to consider other options, such as CDs, and money market accounts. You can open a custodial account for your child, and then add other investment vehicles, such as a certificate of deposit (CD) or a money market account.
Certificates of deposit
CDs offer some of the highest interest rates available for deposit accounts insured by the FDIC. They can be a risk-free option if you're investing money you will need for a specific purpose, such as college or a new car, and you don't want to risk losing any of your savings.
Money market accounts
Money market accounts provide high interest rates (for an FDIC-insured deposit account), low fees, and modest minimum deposits. They often provide checking account features, such as check writing privileges and ATM cards.