Do you have a son or daughter? Do you want to set up a savings account for them? You can help your children get set up for the future by having them develop good financial habits early on. In this article, I’m going to answer three questions related to the best savings account for kids. 1) Should you create a savings account for your child? 2) Where can you find the best savings account for kids? 3) What are the tax implications if you set up that savings account?
What are savings accounts for kids?
A savings account for kids is a savings account at a bank, credit union or other financial institution that is specifically for people under the age of 18. The account must have joint ownership with an adult. There are some additional benefits to a savings account for kids such as no monthly account fees, low to no opening balance requirements and online learning tools to boost a child’s financial literacy.
Should you create a kids saving account?
When I was growing up, my Mom opened a kids savings account for me when I was in elementary school. It was very exciting. I had this passbook (physical notebook) where I would see the deposits that I had made. I would see the interest I was earning. Who knows, maybe that was instrumental in shaping the financial planner that I am today.
I personally think that having a savings account for your child and making deposits together is a great way to instill the habit of saving early on. Good money habits are very important!
One downside of a kids savings account is the interest rate may not be as high as an adult savings account.
Is it safe to put my money into a kids savings account?
Yes, kids savings accounts have the same protection as adult bank accounts. Therefore in the event of a bank failure, the account is FDIC insured for up to $250,000 per depositor for each account ownership category.
What is the best savings account for kids?
We review five of the most recommended savings accounts for kids.
1. Capital One Kids Savings Account. The interest rate is pretty competitive and it’s paid on any balance. There is no minimum balance requirement and there are no fees. The mobile app is highly rated. There is an automatic savings plan available which can help your child make scheduled, regular deposits to their account. I have a Capital One account, and it’s easy to make online transactions. This is commonly listed as the best overall savings account for kids.
2. Alliant Credit Union Kids Savings Account. They offer a competitive interest rate, no fees, and an excellent mobile banking app designed for kids and parents. There is a minimum opening deposit of $5 but Alliant will give your child the $5 to cover this requirement. The account will only start earning interest once $100 has been deposited. One of the downsides that I see here is because it’s a credit union, you have to be a member of this credit union.
3. Bank of America Minor Savings Account. There are no monthly fees for account holders under the age of 18. The account has a minimum opening deposit of $25 but there is no minimum daily balance. The downside is that the rate is quite low. It’s almost like a checking account.
4. BECU Early Savers Account. BECU stands for the Boeing Employees Credit Union. They have very competitive rates on the first $500 but then after that the rates are low. There are no monthly service fees and no minimum balance requirements. A downside is that you have to live or work in Washington State or some counties in Oregon. They also do not offer any financial education tools.
5. USAlliance Federal Credit Union MyLife Savings for Kids They offer a competitive interest rate on the first $500 and have a special feature of paying $10 in “birthday bucks” every year through age 12. However, a credit union membership is required for both parent and child. This seems like a great option for kids.
| Bank | Age limits | Minimum balance | Interest rate | Special features |
| Capital OneKids Savings Account | Children's Bank Account | Capital One | Up to age 18; checking available at 8 | 0 | 0.30% APY | Top-rated mobile app |
| Alliant Credit Union | Age 12 and younger; checking available at 13 | $5 and then a total of $100 to earn interest | 2.35% APY when you have $100 or more | Earn strong interest on the whole balance. Also offers Excellent teen checking, with ATM fee refunds |
| Bank of America Minor Savings Account | Up to age 18; checking available at 13 | 25 | 0.01% APY | Potential interest rate boost if you become a Preferred Rewards client |
| BECU Early Savers Account | Up to age 18; checking available at 13 | 0 | 6.17% APY on the first $500, then 0.50% APY after | Great introductory APY for the first $500 |
| USAlliance Federal Credit Union MyLife Savings for Kids | Through age 12; checking available at 13 | 0 | 2% APY on first $500 | $10 annual birthday bonus through age 12 |
How to choose a savings account for kids
Here are some things to consider when you are trying to choose a savings account for your child.
- No Fees: Kids don’t need to lose money to fees so look for an account with no bank or ATM fees.
- Competitive annual percentage yield (APY): Look for a savings account that pays a competitive interest rate.
- Low minimum deposits: Since kids are just beginning their savings journey they may not have the funds necessary to meet some banks’ minimum deposit requirements. Look for a savings account with no minimum balance requirements.
- Educational tools: Opening a kids savings account should be a great financial learning experience. Look for a bank that offers digital resources that can help your child’s financial literacy.
What are the tax implications of opening a kids saving account?
Does your child need to pay taxes on the interest income they are going to make? Do you need to pay taxes on that? The last thing you would want is to have your child owe back taxes for several years, right?
Upon looking closely at the IRS website, it looks like if the child’s interest income is $2,200 or less, then it is not subject to taxes. Keep in mind though, these are kids’ savings accounts, and a child below 18 years old, as a minor, cannot legally own an account. As a parent, you will need to be a co-owner of this account. Once she becomes of age, then you can remove yourself from this account.
How can I open a bank account for a minor?
Minors cannot open a bank account on their own. First, you need to fill out the paperwork for opening an account and you must list the minor as the primary account holder and yourself as the joint account holder.
You will typically need your driver’s license, social security number, your child’s social security number, your child’s birth certificate, and proof of address. This will change depending on the bank that you decide on, so it’s best to contact them first so that you can get all of the documents together before you open a bank account.
Should you use a kid’s savings account to save for college?
If you want to save for your kids’ college education, then a kids savings account may not be the best option. A kids savings account typically pays low interest and is better for saving smaller amounts of money. It also does not offer a tax deduction when you make a deposit. A 529 college savings plan, UTMA/UGMA, or a Coverdell Education Savings Plan may be a better option for saving for college.
What happens to a kid’s savings account when they reach 18?
Most banks will usually convert a kid’s savings account to a regular savings account when your child turns 18. There may be additional paperwork to sign, different fees and other decisions that your child may need to make.
Can I open a savings account for my baby?
Yes, you can open a savings account for your baby as soon as they have their Social Security number.
Is it a good idea to open a savings account for a child?
Yes, it’s a good idea to open a savings account for your child. Whether you are a parent or becoming one very soon, opening a savings account can help your child’s financial future.
What else can I do to help my kids learn about money and develop their financial literacy?
1. Give your child the opportunity to earn money. This could be as simple as doing chores around the house.
2. Help your child save money. Let them choose a certain percentage of their earnings that they want to deposit into a savings account each week/month.
3. Let your child spend money. By allowing them to spend some of their money, they understand what things cost. It will also encourage them to earn money so that they can purchase things.
4. Develop a budget with your child. Sit down and develop a budget together. This could be as simple as developing a budget to save for a new toy. You can help them decide how much money to put aside each week until they have enough money.
Start a savings account for your kids early!
College is expensive, and it’s best to start saving early. It’s best to talk to your financial advisor about which savings account may be best for you and your family. If you want help with your finances and are interested in having a comprehensive financial plan, feel free to schedule a discovery call with one of our financial advisors today!
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
