Best Kids Savings Accounts Guide

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Parents are more aware of the value of finding the best savings account for kids and introducing a better financial understanding early in life. Professional recommendations urge parents to make the introduction earlier rather than later. In fact, the earlier, the better as statistics display a financial advantage for children who grow up familiar with saving and managing money.

Scholarly research confirms that not only do children with a savings account have a healthier relationship with saving money, but they are “3 times more likely to enroll and four times more likely to graduate [with] $500 or less saved for college.” Meaning, it’s not just about how much you save, but what your child learns from the experience of saving. Your child’s financial future starts with you having a better understanding of what to look for in a kid’s savings account and how it can benefit your child in the long run.

What Is a Kid’s Savings Account 

A kid’s savings account is a joint account with an adult that can be accessed by the child when they turn 18. Benefits and features vary by the bank and their account offerings. Still, the primary end-game is to get your kid accustomed to the tools and functions related to banking while also building a savings account to prepare them for the future

There’s nothing more detrimental to a child’s financial future than being thrown into adulthood without at least a basic understanding of how finances play an essential role in our livelihood. According to Financial Literacy statistics, a staggering 16% of Americans between ages 18-26 are very optimistic about their financial future, and 51.4% believe that education in “money management” would be the most beneficial to their lives.

Why Do You Need to Open A Kid’s Savings Account?

There are many reasons you need to open a kid’s savings account, preferably right away. Among these are a few significant reasons to keep in mind when making your decision:

Financial Future

The most obvious benefit of good savings account for kids is having money saved up over their childhood compared to the alternative. It sets up their financial future by preparing them for the inevitable handling of their finances and building their savings for important (and pricey) purchases.

Education 

Not only is it important for education savings, but it can provide them with a financial understanding that most young adults learn the hard way (after building debt). Educational content can provide kids with a fun way to learn more about banking.

Responsibility 

Parents typically teach responsibilities like manners, chores, getting an education, and health. Another important responsibility that should be introduced is saving and money management, which can be taught through hands-on experience and tools offered in kid’s savings accounts. 

Safe-keeping and Good Money Habits

Not only is it safer for you to keep your children’s money gifts in a bank, but it is also teaching your children to make it a habit of contributing to their savings account rather than reckless spending.

Kid’s Savings Accounts Rates & Types

There are two types of savings accounts for kids to consider when deciding where to put your child’s hard-earned money. Your options are to open a savings account or custodial account. However, you need to be aware of a significant difference between these two accounts before making your decision.

A custodial account can be subjected to tax and legal complications like filing tax returns and gift tax returns for your child, with income amount dependent on state requirements. Barron’s explains that “under the Kiddie Tax rules, a minor child’s investment income above the annual threshold ($2,200 for 2019) can potentially be taxed at the rates that apply to trusts and estates. Those rates quickly rise to 37% on interest income and short-term gains and 20% on long-term gains and dividends.”

Savings accounts are tax-free, so it is highly recommended to avoid the hassle of a custodial account for high-interest savings account for kids.

The Best Time To Open a Kid’s Savings Account

There’s no strict guideline on when you should open a kid’s savings account for your child. However, the sooner you do, the better. Opening a savings account for your baby gives you a safe place to hold their money from birthdays and other special occasions. From there, their savings can build (with interest) until your child is at an appropriate age to begin learning about their savings account and tools.

PBS reveals that “by age 3, your kids can grasp basic money concepts.” This will be a great time to introduce the concept of money and exchange (like toy cash registers and other interactive games). They continue, “By age 7, many of their money habits are already set.” This means that you have a small window between 3 and 7 to introduce positive money management practices and familiarity. With a savings account already in place, it will only take the extra effort of taking time to go over and explain the tools, concepts, and features of owning a savings account. 

Additionally, the Consumer Financial Protection Bureau’s research has found that children are “developmentally capable” of saving at age 5. Due to this finding, it’s recommended to be more serious about moving away from just “financial talks” to more hands-on experiences with banking at around 5. 

Best Kids Savings Accounts: Features Overview

Depending on your intentions with opening free savings account for kids, certain features should play a big part in deciding on your banking options. For instance:

  • Access to college funds is best if you want to save up money to pay for your kid’s college compared to savings specific to other long-term goals like a car or home purchase. 
  • Kid-friendly mobile/online banking is best if you want to teach your children about finances at an early age compared to traditional banking options. 
  • Automatic deposits are the best feature for parents on a budget who have a set amount to contribute than remembering to make deposits.
  • Short-term goals features are the best for teaching children about the importance of establishing a savings goal and meeting it compared to unorganized spending.
  • High APY rates are the best feature for any individual looking to accumulate extra income in their savings account compared to a low APY rate.

Fees and Requirements

There are some fees and requirements to be aware of when opening a children’s savings account, as it’s different from bank to bank. There are even some that are without a fee and require no minimum balance. The three most common requirements are as follows:

  • Minimum balance requirement: Some banks expect a minimum daily balance to be met to avoid fees. Keep an eye out for this requirement so you can meet these expectations without any problems or find another option that better suits your needs.
  • Monthly fees: It’s not a typical requirement, but it is occasionally included in terms. It’s more beneficial to find an account type that doesn’t have it.
  • Minimum deposit: The amount a bank requires you to deposit when opening the account varies. It can be as low as $5 or as much as $100. Either way, a contribution is typically expected right off the bat.

What you Need to Open A Kid’s Savings Account

After setting up an appointment with your chosen financial institution, your next step is to get the process started. Your kid’s savings account is required to be joint with an adult, so first and foremost, you will need your photo ID and proof of address (document with your name and address on it). A bill, property tax receipt, lease agreement, and paycheck are good examples of acceptable documents for proof of address. In addition, your child is expected to provide one of the following documents to confirm name and identity: 

  • Driver’s license (if your child is old enough)
  • Passport
  • Birth certificate
  • Social Security card
  • School photo ID
  • Immunization records

UNest Investment Account for Kids

Another great way to establish financial stability is to introduce your kids to investment banking. When done right, it can be an excellent option for building long-term financial returns and teaching children about investment principles. 

UNest is designed to help you manage your kid’s investments to meet important long-term goals like weddings, college, homes, and cars. It is easily accessed through your UNest mobile app. UNest offers a tax-advantaged investment account for kids with additional advantages like tax-free earnings, rewards on your favorite brands, parental control of investment, a minimum deposit of $25, a user-friendly interface to track growth, adjust contributions, and allocate funds, and much more. When it comes to your child’s future financial success, UNest is committed to making a positive difference. 

The Takeaway

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Kid’s savings accounts set the foundation for good money habits and provide structure and planning to their financial experiences. Children with a savings account are much more likely to make better financial decisions if they’re taught money management to the same degree parents teach manners, honesty, and being kind to others. Understand your options and compare features and fees to get the most out of your experience. Finally, consider a UNest investment account for kids to grow their contributions tax-free and get children more involved and interested in investing.

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