Hampton Branch Temporarily Closed
Our branch in Hampton is temporarily closed due to smoke damage. For service, please contact us or visit another nearby Merchants Bank location in Cannon Falls, Hastings or Northfield. Thank you.
Kids Savings Accounts: The Basics
Personal Finance
Education
| 08.06.2024
Helping your child build a financial foundation starts with learning the basics of saving and spending. You can start laying this foundation from the time your child is young by setting aside savings for their future.
With generous newborn gifts, birthdays and other celebrations, your young one is likely to receive cash fairly regularly. When it comes to storing this money, there are many options available to you and your child. From traditional savings account and certificates of deposit to special kids savings accounts designed specifically to build money-saving habits early, you’ll be able to find an account that fits your goals.
In this article, we’ll review the basics of a kids savings accounts, how to open an account and our best tips for managing your child’s savings. Once you’re done, you should feel confident in taking the next step to create a savings plan for your child that grows with them into the future.
With generous newborn gifts, birthdays and other celebrations, your young one is likely to receive cash fairly regularly. When it comes to storing this money, there are many options available to you and your child. From traditional savings account and certificates of deposit to special kids savings accounts designed specifically to build money-saving habits early, you’ll be able to find an account that fits your goals.
In this article, we’ll review the basics of a kids savings accounts, how to open an account and our best tips for managing your child’s savings. Once you’re done, you should feel confident in taking the next step to create a savings plan for your child that grows with them into the future.
If you’d like to skip ahead, click on a specific question below to jump to the answer:
- Can I open a savings account for a child?
- Where should I put my child’s savings?
- What kind of savings account should I open for my child?
- What is a kids savings account and are there certain benefits?
- How much money should I put into my kids savings account?
- As my child gets older, what other types of accounts should I consider?
Can I open a savings account for a child?
Yes, you can open a bank account for your child at birth with an adult joint owner. The adult owner on the account does not need to be a parent, just an approved applicant over the age of 18.
The joint owner will have access to the kids savings account to make deposits and withdrawals (if allowed based on the account parameters), receive account statements and can choose to view the account through Online & Mobile Banking.
In order to open a savings account for a minor, you’ll need to have the following information with you during the account opening process:
- Social Security Number of adult and child.
- Valid photo ID of adult.
- Basic personal information, such as contact information and address.
You can open a childrens savings account at Merchants Bank by making an appointment at your local branch. You and your child will need to both be present.
Where should I put my child’s savings?
Ultimately how you choose to save for your child depends on your goals...and you may have more than one. For example, you may want to save for a shorter-term goal like their first bike and you may also want to help them save for college. The most important thing is to just start.
Hadley, a Universal Banker in Apple Valley, shares: “One piece of advice I wish I had followed when I was younger was to start saving early. Opening up a savings account for your child as soon as possible helps you teach them the basics and give their savings more time to grow.”
To help you determine the best approach, you should consider the:
- Various savings goal(s) and their target dollar amount(s).
- Time frame associated with each goal (i.e. months vs. years).
- Access you’d like your child to have (now or later, for example at age 18).
- Importance of growing the money through interest earned.
There are many different financial tools available to you, including traditional savings accounts and money markets or more complex options like wealth management. Talking with a financial planner or banker who can help you prioritize your goals, compare the different options, and put a savings plan in place is a great place to start.
What kind of savings account should I open for my child?
If you’re interested in a simple account to help your child save, a savings account is an excellent choice. But you may be wondering… “What is the best savings account for my child?” The best savings account for you and your child goes back to your goals.
Would you like to have easy access to the funds if needed? Then finding an account that allows for multiple withdrawals in a month or quarter would be ideal. Is maximizing growing your child’s savings through a higher interest rate important? Then you’ll want to compare savings account rates to find the best one. Do you want a savings account that helps your child learn the benefits of saving? Then choosing an account specifically designed as a kids savings account makes the most sense.
Here’s a great reminder from our Universal Banker, Kenzie, in La Crescent: “I think it’s important to know that you don’t have to be a perfect saver…you can make mistakes. A savings account is a great tool to encourage saving, but you will spend the money in it from time-to-time. That’s what it’s there for!”
What is a kids savings account and are there certain benefits?
A kids savings account is a savings account that is available to children under the age of 18. There are a variety of different kids savings accounts available through financial institutions, many designed to help children learn the basics of banking and saving money.
You will want to review all of the account parameters and decide what is most important to you. Specifically, some kids savings accounts may include:
- Special interest rates to grow savings balances.
- Prizes or other perks for reaching certain savings milestones, helping your child understand the value of saving.
- No fees or minimum balances, making the account easy to open and manage.
- Ability to automatically convert the account to an adult savings account when the child reaches a certain age. Keep the savings habit going!
At Merchants Bank, you can choose between two kids savings accounts: Kids Savers Club and My Future Fund. Each account is geared toward a different purpose. Kenzie explains, “The biggest difference between our two kids savings accounts is access to the money in the account. With a Kids Savers Club, you can withdraw money any time you need it. With a My Future Fund, the money isn’t accessible until your child turns 18. Typically, a My Future Fund account is the better choice if you have a longer-term goal with a larger dollar amount. Something like a car, tuition for college or trade school, etc.”
How much money should I put into my kids savings account?
Great question. And we’ll say it again…it depends on your goals! Hadley has this advice for parents considering what amount to save: “How much you should save is specific to your family and the goals you have in mind. Do you think your kid will want to go to college? Travel? Buy a car? Attend a weekly summer camp? Each of those goals have different costs.”
The easiest way to determine how much to contribute is to work backward from your target dollar amount. If you know the total amount you’ll need for your goal, you can break down how much you’ll need to save per year and then per month.
For example, let’s say you want to save $20,000 to buy your child a car at age 16. Let’s do the math:
$20,000/15 years = $1,334 (the amount that needs to be saved each year)
$1,334/12 months in a year = $112 (the amount that needs to be added to savings each month)
In summary, you’ll need to add $112 dollars per month for 15 years to reach the $20,000 goal to purchase a car. You can apply this same principle if you’re saving for college tuition or something with a smaller dollar amount like a laptop.
“You’ll also want to keep in mind that goals may change over the years,” says Hadley. “You and your child will want to check in on your goals regularly and talk about if anything needs to be adjusted to stay on track.”
Regardless of your goal, you can make reaching it easier by setting up automatic deposits. Having a certain dollar amount either automatically deposit from your paycheck or transfer from another financial account each month lets you “set it and forget it.” Your child’s savings account balance will grow without you having to think about it!
As my child gets older, what other types of accounts should I consider?
A savings account is a great place to start building money habits. When your child gets a little older, perhaps around the time they start their first job, a checking account is an ideal next step.
Many financial institutions, like Merchants, offer student checking accounts for teenagers. With no minimum balances to maintain, a debit card and Mobile Banking, your child can begin to learn more about spending, in addition to saving, and build healthy money habits for the future.
Kenzie advises, “One of the most important things you can do as your child begins to learn money basics is talk to him or her about wants versus needs. This is something that will apply throughout their entire life and a concept that can really be discussed at any age because there are so many different examples.”
How to manage, maintain and talk about money is an important skill set you’ll help develop in your child. Starting with a kids savings account, your child will learn about financial responsibility and feel more confident about managing money in the future.
