Opening a savings account for a child

Quick insights

• Opening a savings account for a minor can help them learn critical financial skills that will become increasingly important as they age into adults.
• Child savings accounts generally mimic the features of an adult savings account, with additional tools for parental oversight and educational features.
• Parents and guardians can enhance the experience by taking the time to explain financial concepts at an age-appropriate level.

Opening a savings account for a minor can be as straightforward as establishing a joint account at your preferred bank. However, with increased focus placed on early financial education, many banks now offer specialized savings and checking accounts created with child-friendly features. In this article, we’ll examine the potential benefits of early financial education, common savings account features and what's typically required to open an account.

The importance of financial literacy for kids

“Financial literacy” is a term commonly used to refer to a collection of knowledge, skills and habits that allow an individual to make informed decisions with their money. This could include topics like saving, avoiding debt, investing or even running a business. For many, improving financial literacy is a life-long process, often learned through lessons in adulthood.

Helping children improve their financial literacy may help them use their money more wisely as they grow into adults. As a practical life skill, it may help improve their financial independence and confidence as they mature and take on new responsibilities. Down the line, early exposure to financial concepts may also contribute to building career skills or developing an entrepreneurial mindset.

Standard elements of savings accounts

When comparing savings accounts for a child, many of the same decision-making factors apply as if you were selecting an account for yourself. However, these aspects can carry a different significance when considering benefits for a young account holder.

Interest rates

Most savings accounts offer interest (or APY, Annual Percentage Yield) on their balance. Children have the advantage of a long window for compounding growth, so it’s important to consider accounts with a high APY when selecting.

Account fees

Some accounts may require you to add a starting deposit or maintain a certain balance over time to avoid paying fees. While standard savings accounts often have these requirements, it’s less commonly seen for child-specific accounts. This helps remove barriers to entry for first-time savers and limits the penalties possible for a child’s account.

Insurance

Accounts at reputable banks typically include FDIC insurance as a standard, which covers deposits in the event of institutional failure to at least $250,000.FDIC-Deposit-Insurance The same is true for child- friendly accounts at major institutions.

Account accessibility

Having a banking app or branch locations offers more ways to use your account. Depending on your child’s age, learning to manage their account with these tools could be an important aspect of their financial education.

Depending on your child’s age, it may be helpful to include them in the process of choosing their account. Showing them how different accounts compare may provide a good opportunity to explain financial concepts and spark their interest.

Specialized features for child savings accounts

Savings accounts with a kid-friendly focus will have certain features that standard accounts do not. At a minimum, these accounts provide the parent or guardian with access to the account’s balance and transfers for oversight. Special features may also include the ability to:

• Send and receive allowance payments: Like with standard accounts, it may be possible to set up one-time or recurring transfers into the account.
• Designate saving goals: Some accounts allow children to define specific savings goals with their parent or guardian which can be tracked over time.
• Educational resources: Depending on the institution, kid-level instructions or educational games may be added resources to help them learn financial skills.
• Access to other financial products: Banks that offer youth-focused savings accounts may also provide checking accounts for older kids and teens.
• Birthday deposits: Certain banks may offer fun or lucrative perks like a $10 birthday deposit.

Opening a savings account for a minor

The process of opening an account for a child is similar to opening one for an adult. Depending on the bank you choose, you can open a savings account for a minor online or in-person at a bank branch. To open the account, the bank will need personal documents that confirm you and your child’s identities, including (for both): name, date of birth, mailing address and Social Security number.

Additional info may be needed from the adult, such as employment information and annual income. In some cases, adults must already have an account of their own at the bank, enabling them to link to the child’s account.

Reading terms and conditions

The parent or guardian is ultimately responsible for the account, including reading all terms and conditions before finalizing the process. Depending on the age of your child, it may be appropriate and beneficial to share this part with them. Dissecting the fine print may not be the most thrilling activity, but it’s a fact of life—and potentially a helpful activity in displaying good habits.

In conclusion

Opening a savings account for a child is a relatively straightforward way to help your child take their first step toward financial literacy. Child-specific savings accounts can provide kids with low-risk exposure to concepts that will become increasingly important as they age into adulthood. By partnering with their child in this way, parents and guardians create an opportunity to make a lasting impact on their child’s approach toward saving money.