What to know about savings accounts for kids
From helping your children start their own accounts to saving on their behalf, here’s how to find the best savings accounts for kids.
Teaching your child how to save money for the future can set her up with good habits for life. Whether you already talk to your child about saving or you’re looking for a way to start the conversation, a real-life savings account can help. It can get your child excited about putting money away for a rainy day and instill some valuable financial lessons. Here are two common account types to consider:
Option 1: Youth savings accounts
Youth savings accounts are like regular savings accounts, but they are designed for the more modest needs of young savers.
These accounts usually have:
- Lower minimum balances.
- Inexpensive maintenance fees.
- Joint ownership. The account is in your name, as well as your child’s, because the law generally prevents minors from opening bank accounts. You both have the ability to make withdrawals or deposits.
- Transfer of ownership. When your child reaches a certain age, you can grant him or her account ownership.
Some banks may require children to reach a certain age before they can open a youth savings account. Other banks, including Bank of America, have no such age restriction.
Consider encouraging your child to use a youth savings account for a portion of any monetary gifts and discuss how much allowance to save. Then help set goals for that money. You can also use the account to explain basic money concepts, such as how interest accumulates. Make sure to explain bank fees and restrictions; for example, federal law limits the number of withdrawals and transfers from a savings account to six per month.
Establishing good savings habits early may give your child the confidence to make smarter money decisions in the years ahead. You may also find your child becoming more responsible when it comes to money and understanding the distinction between needs vs. wants.
As your child gets older, you can consider adding additional features such as a checking account, online banking or a mobile banking app. Learn more about Bank of America’s child savings account options.
Option 2: Custodial savings accounts
You can also help build a nest egg for your child’s future by opening a custodial savings account. These accounts are governed by law—the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). As the custodian, you can deposit funds and manage the account, but the money belongs to the minor, who is not allowed to take it out until age 18 or 21, depending on where you live.
You can withdraw the funds before the age threshold, as long as you use the money to benefit your child directly. For example, you might use some of the money to send your child to summer camp, pay for tutoring or contribute toward a first car. Learn more about Custodial (UTMA) Accounts from Bank of America.
Bear in mind that custodial savings accounts can offer tax benefits on interest income. However, you might have to pay a gift tax if you contribute a large enough amount (more than $14,000 annually) to the account. Before opening this type of account, be sure to closely review the tax and financial aid considerations for you and your child.
Talking to kids about money can sometimes result in blank stares. But putting those words into action by opening a savings account together may be a good way to advance your child’s financial education and encourage good money habits.
Choosing the right savings account depends on your goals and those you have for your child. Together, you can lay a strong foundation for your child’s financial future.