Ah, saving. It’s probably the most important money lesson kids can learn. So you’ve taught them to set some of their allowance aside, and now the piggy bank is full. Here are some answers to questions you may have about taking the next step and opening an online savings account for your child.

What is the best children’s savings account?

The truth is, a good savings account is a good savings account, regardless of whether it’s opened for a child or an adult. If a bank offers what they call a child savings account, the benefits of such accounts usually don’t go much beyond the free prize you get for signing up.

Two things that matter most: security and interest.

Teaching your child to put away a few coins in her piggy bank is a great start, but opening an online savings account is a great way to keep your child’s money secure. It makes sense that a savings account at a bank is safer than a jar on a bedroom shelf, but be sure to choose an FDIC-member bank. Deposits in FDIC-member banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum amount allowed by law.

But that money deserves not only to be safe from sticky-fingered siblings, but also to earn interest. The earlier your child starts saving in an interest-bearing account, the better, thanks to compound interest. Compound interest allows you to earn interest on deposits you make as well as on the interest the deposits already earned.

Other things to consider are minimum balance requirements, account access, potential fees, and website usability—along with interest rates. Note that online banks tend to offer more competitive interest rates because their overhead expenses are lower than those of brick-and-mortar banks.

A good approach is simply to do a little research to find the best savings account, and adapt it to the needs of you and your child from there, perhaps with a custodial account, UGMA, or UTMA.

What is a custodial account, UGMA, or UTMA?

A custodial account names an adult as the “custodian” of the funds in the account. The most common types of custodial accounts are known as UGMA (for the Uniform Gift to Minors Act) or UTMA (for the Uniform Transfer to Minors Act). The money in these types of accounts is the property of the minor, but is managed by the adult custodian, who has the ability to make withdrawals and deposits, as well as close the account.

When the minor reaches legal age, the UGMA or UTMA can be converted into a regular savings account. Whether you set up a UGMA or UTMA depends on individual state requirements. Basically, if you set up a UGMA or UTMA savings account for your child, your child will gain full access to the money when he or she becomes an adult.

What is an account for a Trust Agreement?

An account for a Trust Agreement is a deposit account that can be opened by a Trustee for the benefit of someone else (beneficiary). These accounts:

  • protect assets during and after the Grantor’s life.
  • must have a specific purpose, a designated beneficiary, and specific duties for the Trustee as designated by the Grantor.
  • require a written Trust (with a Social Security or Tax ID number), which typically requires the services of an attorney.

In other words, if you set up an account for a Trust with your child as the beneficiary, you can outline when and how the child gains access to the money in the account when you set up the terms of the Trust.

Can I open a joint account with a child?

The short answer is: it depends. Under federal law, minors (usually those under 18) are not allowed to open a savings account in their own name alone. Some states allow minors over a certain age to have equal access to a joint account, but the final word is still up to each individual financial institution.

How do I keep my child motivated to save?

That’s simple: involve him in the process. You may be afraid that if your child can’t see the tangible evidence of accumulating dollars and coins, he won’t be motivated to add to the pile. Keep him interested by regularly involving him in the account. With each deposit, point out the difference between the balance before and after. Give him a task like keeping a running total or calculating interest earnings. Remember, you don’t have to wait for the monthly statement. With an online savings account, you’ll have 24/7 access, so you and your child can take a look whenever you want. Seeing that balance grow is the best motivation to save even more.

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Last Edited: November 20, 2017