It’s never too early to plant the seeds of educational and occupational success. Children with personal savings accounts are far more likely to attend and graduate college when compared to their peers without.
Even with that in mind, opening a savings account for kids can seem like an intimidating proposition. Is it really a good idea to introduce them to the world of banking and finances at such a young age? According to a variety of studies, the answer is an unequivocal yes.
No matter the age of your child, it’s time to start thinking about opening a savings account. Here’s everything you need to know about savings accounts for kids.
What Is a Savings Account for Kids?
A child savings account is an official offering by banking institutions large and small. They differ from traditional savings accounts with special perks such as financial education programs, zero fees, and dual account access. You can typically open a savings account for kids at any age, but it will always convert to an adult account once they become 18 years old.
You should note that a savings account is primarily used to teach kids about money. While a child savings account does come with a high-interest rate, it is not a replacement for a college savings fund. For college, take advantage of a 529 plan in addition to a savings account for kids.
Opening a Savings Account for a Minor
If you live near a physical bank institution, you can arrive in person to open up the account. Minors cannot sign legally-binding documents, so you’ll have to do the work for them. Make sure you bring their social security number with you as you’ll need one to create the account.
However, you can also create child savings accounts from the comfort of your own home. It’s as simple as providing personal contact information, adding money to the account, and paying any opening fees.
Once you’ve opened the account, you should take some time to personalize it to your needs. This may include setting up automatic transfers in lieu of physical allowance payments. It’s also important to determine the extent of the child’s account access at this time.
Deciding on a Banking Institution
Banks everywhere will offer unique features for a child savings account, and it’s up to you to choose the best option. What kind of features should you prioritize?
Although savings accounts don’t have interest rates like they used to, it’s still important to snag a modest APY. Remember that this savings account will continue to bear interest across a potential span of 18 years. Across almost two decades, even fractional interest rate adjustments can have a significant impact on your child’s savings.
Most child savings accounts don’t come with monthly fees. You should make sure yours doesn’t, either. However, don’t be surprised if you’re expected to pay a hundred dollars or more as a deposit to first open the account.
Since these savings accounts are supposed to contribute to your child’s financial literacy, it’s important to find a program that takes this into account. While rare, some institutions offer monetary rewards for good grades. It’s usually a minor incentive, such as $5 for an A-average report card, but that’s a good deal of money for a young child.
Lastly, ask these banking institutions about the educational components involved with the bank account. Some banks only send informational dockets through the mail. But others are slowly adopting high-tech trends through the use of their official apps.
The Benefits of a Savings Account for Kids
Some parents may think a savings account isn’t necessary for their young children. After all, what are they going to do with it?
As it stands, the practical uses of a savings account suggest that every child can benefit from owning one. Let’s take a look at some of the benefits.
1. Improved Financial Literacy
We’ve already stated that owning a child savings account is supposed to prepare them for the real world. The research proves this isn’t just hearsay. In general, teenagers who own a savings account perform better on financial literacy tests.
They’ve already learned some of the fundamentals of banking and saving while others, who create their accounts at the age of 18, are just getting started.
2. Convenient Deposit Options
It’s common for relatives to send checks on your child’s birthday or special holidays. If they own their own savings account, they’ll be able to make the deposit without your being the middle-man.
It may seem like a small thing, but this convenient option can save you countless trips to the nearest bank, especially as more institutions continue to go digital.
3. Valuable Nest Egg
With the help of interest and automated allowance payments, even a modest savings account can swell into something substantial two decades later. This can give your children the financial jumpstart they need to eke out their early adult lives, whether it means paying for community college, the first month’s rent, or buying their own vehicle.
4. Educational Incentives
If your child savings account features monetary rewards for good grades, you’ll encourage them to focus on their schoolwork. This can lead to great habits down the road. Of course, you can always create your own financial incentive system should your banking institution not offer one.
It’s Never Too Early to Save
While savings accounts may seem like something reserved for adults, that’s all the more reason to start educating children early. Opening a savings account for kids can give them the financial literacy and confidence they’ll need in adulthood. And best of all, it shouldn’t cost you more than the opening deposit fee.
That’s a small price to pay for a lifetime of financial well-being. But learning about finances isn’t something reserved for small children. Educate yourself with the help of our banking blog.
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