What to Know About Savings Accounts for Kids

Opening a savings account for your child introduces them to concepts such as saving, budgeting and compound interest. With a savings account, kids can deposit money from birthdays, holidays, chores, allowances and part-time jobs while potentially gaining some interest.

Teaching kids about money management through a bank account provides hands-on practice in financial responsibility, which can help set them on a stable path to financial wellness. We discuss the different types of bank accounts available to kids, what factors to consider before opening an account and tips for effective account management.

A kids' savings account is a financial account specifically designed for minors to help them learn about money management. These accounts usually come with parental control options and allow parents to monitor and guide their children. For example, a parent might open a savings account for their teen with a preset debit card limit, giving them financial freedom with boundaries.

Kids' savings accounts typically offer financial education tools, savings rewards, round-ups, no fees or minimums and even investing features in some cases.

Most states and financial institutions don't allow minors to open savings accounts on their own, so as a parent, you'll likely need to open a joint account with your child. That means you'll both be legal owners of the account.

There are several types of kids' savings accounts, each serving different purposes. As with any bank account, parents should look for opportunities to maximize gains on deposited funds through accounts with higher yields.

Custodial accounts are also known as Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts.

With these savings accounts, the funds technically belong to your child, but you manage the money until they reach adulthood (typically 18 or older, depending on your state). The money you deposit is irrevocable and considered a gift to the child, intended for their use when they become adults. The parent or guardian acts as the custodian and has complete control over the account until the child reaches adulthood.

With a joint savings account, both you and your child have ownership of the funds. You may have certain controls in place, like withdrawal limits, to supervise your child's saving habits. This type of account provides flexibility and allows for shared management. You can set withdrawal limits and receive notifications about your child’s transaction as needed.

Education savings accounts, like 529 plans, are designed to save for educational expenses and offer tax benefits. These accounts provide tax advantages for the money saved and used for qualifying educational expenses, including funding private elementary schools. This helps parents build a fund for their child’s future college education or other related, more current educational expenses.

As you consider opening a savings account for your child, weigh how the potential benefits and drawbacks impact your unique circumstances. Here are some pros and cons of getting your kid a bank account:

• Often include special perks, like minimal fees and controls that can be managed by a parent.
• Teach children the importance of saving and managing money.
• Help establish discipline in setting and achieving financial goals.
• Can yield significant interest if you start saving early.

• Kids might overspend without proper guidance.
• May have fees and other use requirements that can erode savings, depending on the account.
• May have limited functionality; for example, they might not offer check-writing capabilities or the ability to make certain types of transactions.

Before you decide to open a savings account for your child, make sure you have a plan — especially if you expect them to spend money regularly. Consider setting limits and communicating your expectations to avoid misunderstandings and fallout.

Before opening a savings account for your kid, consider these factors to make sure they align with your kid’s — and your family’s — financial circumstances. As with any new account, it can help to compare opportunities across different banks. Some institutions might offer relationship benefits if you open an account for your child at the same bank where you have money invested.

Effectively managing your child’s bank account can be a great stepping stone towards building strong financial literacy. Here are some tips to consider to make the experience more rewarding for both of you:

We provide insight about bank accounts for kids by answering some of the most commonly asked questions.