A kids’ savings account costs can make a difference to the savings for your children’s future. When it comes to giving your children a stable and healthy financial future, the amount of time you invest and save — and not just the amount of money you invest and save — is one of the most important factors for success. The sooner you start, the better.
For example, let’s say you start saving $1 a day for your child starting on their fifth birthday. If you put that into a high-yield savings account with a 1.5% interest rate, that daily contribution will grow to a significant $5,239 by their 18th birthday.
In contrast, if you wait to open a kid’s savings account until their 10th birthday, that same $1 daily contribution would only add up to $3,102 by their 18th birthday.
Likewise, put it into a children’s investment account with an annual percentage yield of 7%. Your $1/day contribution starting on their fifth birthday adds up to an incredible $7,740 balance (a $2,995 return on only $4,745 of investments). Wait five extra years to start, and your kid’s investment will only be worth $3,914.
However, many kids’ savings account costs are sometimes associated with custodial accounts. Don’t let confusing terminology and unexpected fees sabotage your child’s financial future.
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How A Kid’s Savings Account Works
Technically, someone must be of legal signing age (age 18 or 21, depending on what state you live in) to open any financial account.
However, many forward-thinking banks, credit unions, and investment providers — UNest’s investment account for kids being a prominent example of one such inveoffer custodial and other types of accounts to save for your children’s future.
With a custodial account, a child of any age — from newborns to adolescents — can open a savings or investment account. There’s just one caveat: You, as the parent or guardian, must also be a part-owner of the account (i.e., a custodian).
Beyond that, there are no other age restrictions for a child to have a savings account or investment account. However, any financial decisions made about the account (e.g., buying stocks, selling stocks, or closing the account) must be approved by you.
And with you as the custodian, you have a wide array of options for choosing the best bank for children’s savings accounts.
Kid’s Savings Account Costs
When reviewing a kid’s savings account costs, you want to look for high minimum balances, unusual maintenance fees, or other secret kid’s savings account costs that affect the benefits of compounded interest and savings.
While some fees will always be associated with a kid’s savings account, some children’s high-interest savings accounts provide a lot of flexibility and no unnecessary charges. Also, consider other costs such as brokerage fees if you invest your child’s savings in the stock market.
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1. Minimum Balance
Some banks can shut down your account or add extravagant monthly or daily charges if the account doesn’t meet the institution’s minimum balance.
When you’re saving for your child’s future, you likely won’t be directing the same level of cash flow to the accounts as you would with your primary savings account. Therefore, minimum balance requirements can quickly sabotage any gains your children are making in their savings.
You want to look for children’s long-term savings accounts with no minimum balance requirements and give you the flexibility to invest as much or as little as possible.
3. Maintenance Fees
Another kid’s savings account cost to look for is the account maintenance fees. You want your children’s account balance to go up each month with no maintenance fees that cancel the positive effects of compounded savings and compounded interests.
4. Other Kid’s Savings Account Costs
When navigating your many financial options for your children, don’t just focus on the fees associated with opening and managing your kid’s savings and investments.
Know what to watch for and expect, so you can choose the correct account for your family and navigate the financial process confidently.
So before you open the account for your children, ensure you understand all the costs associated with it to avoid surprises in the future.
What to Look For Regarding Kid’s Savings Account Costs
While many traditional savings accounts and investment accounts charge fees, kids’ savings accounts should have:
- No high monthly maintenance fees: It’s another way for banks to make money off you. An estimated 40 percent of a traditional bank’s income comes from maintenance fees and similar charges. The one exception will be if you’re opening an investment account, as there are usually charges associated with buying and selling securities.
- No age-based pricing: Your child shouldn’t be penalized for how young or old they are. Skip any banks that charge a fee based on your child’s age.
- No minimum balance charges: Some big banks require you to maintain a minimum balance of $5,000, $10,000, or more. That’s typically far beyond the standard savings rate for a young child.
- No opening deposit requirements: It’s great if you can afford to immediately invest a big lump sum into your child’s future finances, as that will simply jumpstart their journey towards a solid financial future. But you shouldn’t be penalized if you aren’t ready to drop hundreds or thousands of dollars into your kid’s savings on day one.
Requirements to Open a Kid’s Saving Account
Opening a savings account or investment account for your child isn’t dissimilar to opening one for yourself as an adult.
Because you’ll be a custodian or joint-owner on your child’s finances, you’ll need to identify and identify information.
For the child, your bank, credit union, or financial institution will likely require:
- Your child’s basic information, including name, date of birth, and address.
- Your child’s taxpayer identification or Social Security Number (SSN).
- Proof of your child’s identity, such as a government-issued ID or a birth certificate.
For the adult custodian, you’ll also need to provide your own:
- Basic information, such as your date of birth and mailing address.
- Your SSN or taxpayer identification number.
- Your driver’s license, passport, or similar government-issued photo identification.
Depending on how you’ll initially be funding your child’s investments or savings, the bank may also want direct deposit information from another bank or a check or cash deposit upfront.
How Much is Your Savings Goal?
Saving for your child’s future is similar to saving for your own retirement. You need to know your own financial goals for your child and work backward from those goals to ensure you’re saving enough money each month to help your child achieve that financial target.
Common goals that many parents have for their kids include:
- Saving for college or university
- Saving for the child’s first home
- Saving for a major purchase, such as a child’s first car
While every family is different and your situation will be unique to you and your child’s circumstances and needs, best practices include:
- Set a date: When do you think your child will need this money?
- Set a financial goal: Define what success looks like. Do you want your child to have $10,000 by the dated deadline? or $50,000?
- Set a work-back schedule: Using your chosen financial institution’s interest rates (or projected investment returns), determine how much you need to save each month to achieve your child’s financial goal by the stated deadline.
Once again, time is your child’s best asset. Let’s say you open a high-yield 1.5% savings account for your child, and you want your child to have a savings of $100,000 by their 18th birthday to help fund their future college tuition. Working back from that date and goal and using the 1.5% interest rate projections, you would need to save $90 a day if you were to start saving when they turned 15. However, this number drops dramatically the earlier you get started:
- Age 10: You would only need to save $32 a day.
- Age 5: $19 a day.
- Birth: Just over $13 a day.
Saving For Your Child: Can You Afford It?
Many parents are worried about the financial burdens of saving for their own goals and retirement and simultaneously saving on behalf of their children. Don’t let the pressure and worry keep you from taking any action. As you can see from the example scenarios outlined above, time is on your side. Even a tiny amount invested each day — starting at as low as $25 a month — can grow to a significant nest egg for your child by the time they graduate high school.
It’s less about the dollar amount. And it’s all about getting started and choosing a savings or investment account that gives you flexibility, low kids’ savings account costs, and high returns.