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By Katie Pins
A bank account can teach children the value of money management and the importance of saving. When a child gets a bank account, it can make them feel grown up. And when you emphasize the responsibility that comes with a savings account, a child could get excited about banking.
Think of the memories you have of opening your first bank account. You probably walked into a branch with a parent or grandparent, sat at a desk and helped your loved one fill out the paperwork. It may have been intimidating yet memorable. Banking has changed since you opened an account, and for the better!
Now, the majority of our banking transactions happen wherever we are on whatever device is closest. There are new lessons to be learned about banking, and we’re here to offer some tips on what you need to know before opening a bank account for a child.
There are many different kids savings account types. Depending on your goal, you want to make sure you are opening the right one for you.
Custodial accounts: A custodial account allows you to set up an account where your child is a beneficiary but the child does not have access to the account until a certain age. As the owner of the account, you have access to the funds at any time; however, it can only be used for the benefit of the minor. Custodial accounts can be a way to save, but the child doesn’t have ownership of the account and isn’t an equal partner in the transactions in the account. This makes it hard for kids to learn about money management.
529 Plan: A 529 plan, also referred to as a college savings plan, allows you to invest and save for educational expenses such as private school tuition and college expenses. A 529 plan is great for these long-term goals and has fantastic tax benefits but it’s not a teaching tool for short-term savings goals.
Kids savings account: These types of accounts are joint owner accounts and are typically available for children ages 12 and younger. As a joint owner, you’ll be able to help manage the kids savings account. Your child could save for anything and watch those lemonade stand sales add up. Money management lessons can hit home because the child has a sense of responsibility and ownership in the account.
When you are filling out the application, you’ll want the following things at the ready:
If you’re not already a member at Alliant and you want to open a kids savings account with us, you’ll need to apply for membership. Applying for Alliant membership is easy and can be done before opening the kids account. When you are a member of Alliant, you’ll have a savings account as well, making transfers to the kid savings account even easier.
Opening a bank account for your child is a great way to teach them good money habits and the importance of saving. In order to prepare them for a healthy financial future, you’ll want to look for an account that has a few key features:
Online Account: Banking is becoming more and more digital, so, you’ll want your kids to learn how to bank online in a smart way. You can teach them how to monitor their balance, track their interest earned and deposit checks on your phone. Show them the importance of a strong password that no one would guess or know. You can even emphasize having a unique username that would only be used for banking. By walking them through the app on your phone, you can set up alerts together and when you’re done with the app, demonstrate the importance of logging out.
Great Interest Rate: Even kids savings accounts can come with a great annual percentage yield (APY). Shop for a kids savings account together and show your child how different banks offer different rates. You can describe the interest rate as the bank encouraging you to save. Some banks will reward you more, and the interest rate matters, especially over time.
No monthly service fees: Read the fine print to ensure there isn’t a service fee associated with the account or a minimum balance requirement. Also, check what happens to the kids savings account when the child becomes a teenager. Does the account automatically become a regular savings account? Are there fees related to that account?
Other account options: When your child becomes a teenager, you’ll want to teach your teen about checking accounts as well. See if there are options for teen checking accounts at the same bank or credit union. That way, your child can learn the difference between the accounts and how to use each.
Katie Pins is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.