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.

Key Takeaways

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You can open a savings account for your kid at any age, starting from birth.

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Child savings accounts help teach financial responsibility. They often come with tools like parental controls, savings rewards and no fees or minimums.

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Minors typically can't open accounts alone, so you’ll need to open a joint account where you both are owners or a custodial or education account such as a 529 plan.

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Banks offer various security features like real-time transaction monitoring, FDIC insurance, data encryption and fraud alerts to protect a child’s account.

How Savings Accounts for Kids Work

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.

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WHAT IS THE RIGHT AGE FOR A SAVINGS ACCOUNT?

You can open a bank account for your child at any age, starting from birth. Though there's no "right" age, many parents choose to open accounts when their kids begin receiving money, such as allowances or gifts. This can help instill financial responsibility and savings habits early.

Types of Savings Accounts for Kids

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 Account

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.

Joint Account

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 Account

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.

Pros and Cons of Savings Accounts for Kids

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:

Pros of Savings Accounts for Kids
  • 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.
Cons of Savings Accounts for Kids
  • 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.

Factors to Consider Before Opening Savings Accounts for Kids

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.

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    Interest Rates

    Interest rates can vary significantly between financial institutions. A higher interest rate can help your child’s savings grow faster, so it’s worth shopping around to find the best yield possible.

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    Fees

    Some banks may charge fees associated with the account, such as monthly maintenance or overdraft fees. These are important to know, as misunderstandings can reduce your child’s overall savings.

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    Additional Features

    Look for special perks like parental controls, spending limits and ATM cards. These features can help manage your child’s spending and teach them about real-time money management.

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    Financial Education Tools

    Some banks offer special resources and tools to help children learn about money. These can be a valuable addition to your child’s financial education.

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    Convenience

    Check the bank’s physical branches and ATM locations, plus the availability of online banking and mobile apps. Easy access can make banking more convenient for you and your kid.

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    FDIC Insurance

    Ensure that the bank is federally insured. This protects your child’s money up to a certain amount if the bank fails.

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    Age Requirements

    Banks and credit unions may have age restrictions for bank accounts. Make sure your child meets the age requirement of the bank you’re considering.

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HOW DOES OPENING A BANK ACCOUNT AFFECT A CHILD'S PRIVACY AND PERSONAL INFORMATION?

Opening a bank account requires you to share your child’s personal information with the bank, including their name, address and Social Security number.

However, banks are bound by stringent privacy laws to protect the personal information of minors. Under regulations like the Children’s Online Privacy Protection Act (COPPA), banks must take special care in handling data associated with children’s accounts.

Children should also learn to be cautious about where they enter their bank account information to avoid scams and fraud.

How to Open a Kids Savings Account

Opening a bank account for your kid is a straightforward process that involves a few key steps we explore below:

  1. 1
    Choose a Financial Institution

    Explore different banks, credit unions and other financial institutions. Compare interest rates, monthly fees, minimum opening deposit and balance requirements to find the best option for your child’s needs.

  2. 2
    Gather the Necessary Documents

    Collect the standard documents required for opening a bank account. These may include your child’s name, birth certificate, Social Security number, school photo ID, passport or other identification.

  3. 3
    Apply for the Bank Account

    You can apply for the account online or by visiting a physical branch. Each method has its own set of instructions, so choose the one that is most convenient for you.

  4. 4
    Make an Initial Deposit

    Some financial institutions require an initial deposit when opening an account. Ensure you have the necessary funds ready to meet this requirement and kickstart your child’s savings journey.

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WHAT ARE THE FEES AND REQUIREMENTS OF CHILD SAVINGS ACCOUNTS?

When opening a bank account for your child, be aware of extra potential fees and requirements that may apply. These can vary by bank and account type but typically include the following:

  • Minimum Opening Deposit: This is the initial amount required to open the account. It varies from bank to bank.
  • Minimum Daily Balance: Some banks require a minimum balance to be maintained in the account each day to avoid fees.
  • Monthly Maintenance Fees: These are fees that some banks charge for the upkeep of the account, though many kids' accounts are feeless.

Tips for Managing a Kids Savings Account

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:

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    Set Savings Goals

    Encourage your child to set savings goals. This could be for a specific item they want to buy or just a general savings target. It helps them understand the value of money and the importance of saving.

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    Monitor the Account Regularly

    Regularly review the account with your child. This can help them understand how their money is growing over time, how interest works and the impact of any fees. It’s a good habit to establish early.

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    Use Educational Resources

    Many banks offer educational resources that can help children learn about money. Make use of these tools to enhance your child’s understanding of financial concepts.

FAQ About Savings Accounts for Kids

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

At what age can a child open a savings account?

Can your child have both a savings and a checking account?

What happens to your child’s bank account when they become an adult?

Do you have to pay taxes on your child’s savings account?

Can you open a bank account online for kids?

About Alvin Yam, CFP


Alvin Yam, CFP headshot

Alvin Yam is a certified financial planner (CFP) with over 15 years of experience working with individuals and corporations. Before founding Paraiba Wealth Management, he was a director at HSBC and a financial consultant at Charles Schwab. Yam is MoneyGeek's expert consultant on wealth management and personal banking.

Yam earned his bachelor's degree in political science from the University of California, San Diego, and his Master of Business Administration from Loyola Marymount University.


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