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Opening a savings account for your kid is a great way to introduce financial education into his or her life. Understanding the concept of money and savings can effortlessly set your child for success in the future. If you are considering a savings account for your kid, this article is for you. Besides the list of the best kids' savings accounts in , , this article will also show you the advantages of a kid's savings account, what to know before you do open it and how to choose the best one in , .
Financial Education is the core advantage of a kid's savings account. Managing money from an early age can make someone’s relationship with money smarter and healthier in the long-run. Children start to understand the concept of money at a very young age. So allowing them to deal with it is a wise decision to teach them about financial responsibility. But financial education is a very broad concept. Here is a more specific list of advantages kids' savings accounts offer:
On top of all that, opening a savings account for your kid can allow them to start saving for long-term goals, such as higher education supplies and tuition. Creating these long-term goals and, from an early age, understanding the financial tools they have to achieve them can help your kids become financially responsible adults.
If you decide to open a savings account for your kid, it is interesting to explain to him/her the difference between their piggy bank and a real bank account. Let’s say you have been giving an allowance to your child and he/she is already familiar with saving cash. Now is time to introduce them to the next phase of their financial education. So here is a perfect way to make them understand why a savings account is a great place to keep their money.
"Put your cash in a piggy bank and it only sits there, nothing happens to it unless you take this money and do something with it. But if you put it in a real bank, you are actually lending them your money – so they need to pay you for it. The amount you're paid for lending the bank your money is called interest. The higher the interest on savings and the longer you keep it with them, the more they pay you back. If the interest is 10%, that means they pay you 10 cents a year for every $1 you save with them.”
Great, your child is convinced. Now here are the basic things you need to know before you open a savings account on your kid’s name in , .
You will have to open the account with them. To open a savings account, banks require some to be 18 years old or older. Therefore, to open an account for your kid, the parent will need to sign on as a joint account holder. This gives you control of the account, but you won’t have the full authority of the money coming in and out.
The parent and the kid will have full access to the account. Since you are joint account holders, both you and your kid will have full access to deposit and withdraw money. Many banks don’t require the presence of an adult when making transactions, so the child could potentially empty the account or accumulate overdraft fees from overspending. That is why it is important to pre-define clearly the limits of the account with the bank.
Ask the bank what happens when the kid turns 18. Often, many terms set for the account may be lifted once your child becomes an adult. This means the account could be used for reckless spending, instead of what you were planning, such as college tuition. Kids' savings accounts also tend to don’t charge monthly fees that will start applying from the moment they become an adult. Usually, once they hit the age of 18, the best choice is to close their joint savings account and have them open an independent account that better fits this new phase.
If your goal is to save for college, consider opening more than one savings account. Long-term savings, such as college savings, shouldn't be fitted into a regular savings account. BY doing that, you will be waiving compounding interest and many tax benefits. Kids' savings accounts are great for financial education. But, if your only goal is to only save money for a large goal like college, there are ideal savings accounts for it. These can be tax-free for education-related expenses and many other advantages.
Don’t assume your kid is too young for a savings account. When it comes to financial education and preparing for your child’s future, there is no such thing as “too early”. If they comprehend what money is and how it works, they are old enough to start playing an active part in saving.
When choosing a savings account for your kids in , , there are a few things that you should consider, because not all services are the same. Here is what to look for – and what to avoid – when picking your child’s savings account.
No Fees are a must. Any savings account that charges monthly fees should be avoided. Most savings accounts for kids – as well as the best ones – don’t charge any fees, so there is no point going for an option that does. Not paying monthly fees will also maximize your child’s savings.
Low or Zero Minimum Balance is also an important feature. Your child will be building its account from scratch, so it will start small. In addition, it’s nonsense for a bank to demand a high minimum balance to open an account for a kid.
Having an Acceptable Interest Rate is fundamental. Otherwise, it is not different from their piggy bank. It is interesting to compare interest rates before making your decision. Even though interest rates won’t be overly impressive in kids' savings accounts, you should look for minimum APYs of 1% or more. Like that, your kid’s money won’t lose value over time.
Branch Location is a good point to consider. If your kid is not old enough to have a phone, online savings accounts may be out of the question. Also, if you are teaching your kid the value of money and saving, bringing your child to the bank to deposit money can be a more memorable experience than making transfers online. You may want to choose a branch location that you can easily bring your kid to, or that they can even attend by themselves. Once they get more used to using their savings account, online options can be a great way to keep their interest in it. Many of them have a gamified user experience and meet the born-digital culture of younger generations.
Financial Education is a service that comes with many kids’ savings accounts. This service, which should be free, can include educational pamphlets and books. Also, many turn the savings account into a gamified experience with websites and mobile apps that teach them about money in a fun way. Looking for a savings account that offers an engaging education program for kids is a great way to keep them interested in learning more.
Good Grades Rewards are a great incentive that some savings accounts have. These programs offer rewards to kids, youth, and student account holders, like a cash bonus if they get good grades at school. Looking for an option that offers this type of service can enhance your kid’s overall education (financial or not).
As everything related to financial life, there is no right answer. But kids' savings accounts can be a great way to introduce financial education and teach your child the importance of saving. It also gives them a sense of ownership of the money they save. However, if your only aim is to save for larger goals such as college or a safety net for their adulthood, there are other options that offer better returns on savings. Whichever you choose, starting early can teach your kid life-long lessons in responsibility, as well as prepare them for a healthier financial future.