Ah, saving. It’s probably the most important money lesson kids can learn. You’ve taught them to set some of their allowance aside, and now their piggy bank is full. Now that they’re ready to take the next step, how do you find a savings account you can use to help your kids save?
Below, find helpful tips on kids’ savings accounts and answers to some other questions you may have about opening an Online Savings Account for your child.
What is the best kid’s savings account?
The truth is minors (usually those under 18) often cannot open a savings account in their own name alone. That sometimes means (depending on which state you live in) you or a legal guardian will need to be involved in the process — essentially, you’d need to open an account in your name and designate it for your child, even if the account can’t be in their name. Since you’d have authority over the account, this is a great way to have a chance to sit down with your children whenever they want to make deposits or withdrawals and teach them some of the ins and outs of saving money.
With that said, there are a few things to consider when choosing a savings account to help your kid save.
First, it might be helpful to remember a good savings account is a good savings account, regardless of whom it’s opened for. And the two things that matter most? Security and interest.
Teaching your child to put away a few coins in their 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 generally safer than a jar on a bedroom shelf, but be sure to choose an FDIC-member bank, like Ally Bank. Deposits in FDIC-member banks are insured by the Federal Deposit Insurance Corporation up to the maximum amount allowed by law.
Those funds deserve to not only be safe from sticky-fingered siblings — in a savings account, they’ll have the ability 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 the deposits you make, as well as on the interest your money already earned. And the more often the interest is compounded, the better.
When comparing bank accounts for your kids, be sure to look at the interest rates offered by different banks. Savings accounts from online banks, like our Online Savings Account, tend to offer more competitive interest rates than traditional brick-and-mortar banks. That’s because online banks usually have lower overhead expenses. Even if there’s only a small difference in the annual percentage yield (APY) offered by different banks, the amount you earn in interest could differ greatly because of compound interest. The more frequently interest is compounded, like daily at Ally Bank, the more you can earn.
Other things to consider are minimum balance requirements, account access, potential fees, and website usability — along with interest rates. 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 (more on these types of accounts below).
What is a custodial account, UGMA, or UTMA?
Custodial accounts name an adult as the “custodian” of the funds in the account — this type of account makes up the majority of accounts opened for the benefit of minors. 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 bank accounts is the property of the minor but is managed by the adult custodian, who has the ability to make withdrawals and deposits.
When the minor reaches legal age, the funds must be turned over to them. Whether you set up a UGMA or UTMA depends on individual state requirements — but basically, if you set up a UGMA or UTMA savings account for your child, they should gain full access to the money when they become an adult, as defined by each state.
You can also open a custodial account through a brokerage, like Ally Invest. Via a custodial account, you can gift stocks, mutual funds, and bonds to your child (or someone else’s), helping them pay for college or start saving for retirement, for example. Over time, the funds in a custodial account could grow, thanks to investment returns or reinvested dividends.
Can you put a kid’s savings account into a Trust?
Once a Trust is established by a grantor, usually any deposit account — including a child’s savings account — can be placed in it. However, keep in mind that Trusts are generally established as part of an estate plan, so there are additional considerations to take into account if you’re looking into Trust options.
If you set up an account for a Trust with your child as the beneficiary, you can generally outline when and how they gain access to the money in the account when you establish the terms of the Trust.
Can I open a joint account with a child?
The short answer: It depends. Minors (usually those under 18) may or may not be allowed to open a savings account in their own name alone. However, some states do offer account options where minors can have equal access to a joint account under certain circumstances. The final word is usually left up to each individual financial institution.
If your goal is to open an account for your kid to use (for making withdrawals or with a debit card) you might consider opening a joint checking account, if your state allows it. This could be in the form of a student checking account, youth savings account, or a standard checking account. Joint accounts typically require one adult to be designated as the account holder.
Just remember, joint accounts give equal access to all account owners, so the minor has full access to the money in the account. You may want to keep an eye on the activity and work with them to hone their money management skills.
At Ally Bank, minors cannot be joint account owners, but we do offer custodial account options. We’re happy to discuss our custodian account options with you. Call 1-877-247-2559 or chat with us online at ally.com to learn more about accounts for kids and teens with Ally.
How do I motivate my kids to save?
That’s simple: involve them in the process. You may be afraid that if your child can’t see the tangible evidence of accumulating dollars and coins, they won’t be motivated to save.
A great way to begin is by helping them set financial goals. They don’t have to be huge — rather, good savings goals for kids to start with are ones that are small and achievable, like a new outfit or toy. That way, they can see how their efforts pay off and be more excited to set future goals. As they continue to grow, you can encourage your kids to start establishing larger, more long-term goals, like a week at summer camp, the down payment on a car, or a portion of their college tuition.
You can even use our buckets tool to help them save for multiple goals at the same time within one savings account.
Then, keep your kids in the loop with the activity in their savings account, and let them help with the money management. With each deposit into their bank account, point out the difference between the balance before and after. Give them a task like keeping a running total or calculating interest earnings.
Not only will this help give them a feeling of ownership and financial responsibility over their funds, it is an opportunity to bolster their financial literacy. Financial education is often absorbed through habits learned from parents, so modeling and guiding kids with smart financial behaviors can benefit them now and in the future.
And remember, you don’t have to wait for the monthly statement for your kiddos to see their progress. 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.
When it comes to finding the best savings account you can use to help your kids save, it’s important to explore your options to find an account that fits your and your child’s needs. Whether you’re looking to open an account as a tool to enhance your kid’s money skills or you want one whose balance won’t be touched at least until the big 1-8, plenty of savings account options exist to help you guide and build your kids’ savings habits — so you don’t need to worry about buying yet another piggy bank to fill.
Looking for an account you can use to help your kid put their hard-earned allowance money to work?