Whether your child’s piggy bank is stuffed, or you want to be proactive about teaching them smart money habits, a kids savings account can be a great tool to kick off building your child’s financial literacy.
Read more: How Ally Bank’s buckets and boosters can make saving easier
What is a kids savings account?
Parents can open a savings account and designate it for a child, even when minors can’t open an account by themselves. As the account owner, you can use it as a tool to teach your child the ins and outs of saving money.
Alternatives to a kids savings account
Savings accounts aren’t the only way to secure your child’s financial future. Other accounts include:
Kids checking accounts: This is particularly useful for older children learning to manage spending with a debit card. This could be setup as a checking joint account with a parent for example. Although, Ally Bank does not offer these type of bank accounts with minors.
Custodial accounts: The most common types of custodial accounts are known as Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA), depending on your state.
529 college savings plans: Plan for future education expenses with this state-sponsored, tax-advantaged investment account.
Guiding your kids with smart financial behaviors can benefit them now — and in the future.
Benefits of opening a kids savings account
Financial habits start young. Opening a savings account for your child can provide them with several benefits in the long-run:
Encourage early financial literacy
Teach children the importance of saving
Enable parental controls for monitoring and guidance
Earn interest on savings
Top features to look for in a kids savings account
As you start to explore accounts, consider ones with:
High annual percentage yield (APY): A good feature to look at when comparing savings accounts is APY, which accounts for the interest rate and compounding periods. The more frequently interest compounds, the more you could earn. With an Ally Bank Savings Account, set up as a custodial account, you can earn more than five times the national average APY, and those who use our smart tools like buckets and boosters save two times more on average. Over a 12-month period, people using our smart savings tools grow their Savings Account balances 2x more, on average, than those who don’t. This is based on the average balance growth of accounts opened since we launched our smart savings tools.
No monthly fees: Without monthly maintenance fees, your child can keep 100% of their savings, potentially maximizing growth through compound interest.
Parental controls and monitoring: With a joint checking account, you can keep an eye on account activity and set spending limits to help teach financial responsibility, and with a UTMA/UGMA account, you can restrict access to funds.
Access to ATMs: Give your child hands-on experience in dealing with money by choosing an account that offers access to ATMs.
How to open a kids savings account
You can open a savings account online in just a few steps:
Choose the right bank: Compare different financial institutions’ fees, interest rates and features.
Gather necessary documents: To open an account on behalf of your child, you’ll typically need their Social Security number and a form of identification.
Apply online: Many financial institutions, like Ally Bank, offer online applications for convenience. Just keep in mind, this would need to be setup as a custodial account at Ally.
Set up parental controls: Once the account is approved, you can customize the settings, depending on the account type, to either monitor and guide your child’s financial activities, or restrict access to funds.
Is a child’s savings account taxed?
Just like adults’ accounts, children may be taxed on interest earned in a savings account.
Can I open a joint account with a child?
If you want to teach financial responsibility or manage money together, you might consider opening a joint checking account — if your state and financial institution allows it.
Joint accounts typically require an adult to serve as the primary account holder. Remember, joint account owners have equal access, so unless there are parental controls, your child will have full access to the money in the account.
What happens when my child turns 18?
At this point, their kids savings account could be converted into a standard adult account, granting them full legal control, sole ownership and the ability to withdraw funds without parental consent.
Start saving early
As a parent, you want to set your child up for success as they get older. Guiding your kids with smart financial behaviors can benefit them now — and in the future.
