Savings Accounts – If you’re looking to teach your kids about money, setting up a savings account is one of the best first steps you can take. Trust me, I learned this the hard way. When my kids were younger, I didn’t really think much about their financial future until one day, I noticed how quickly they blew through their allowance or birthday cash. It made me realize that I had to do better than just giving them cash in an envelope each month.
That’s when I started researching the different types of savings accounts for kids. There are actually quite a few options, and each has its own unique benefits. Here’s what I’ve learned, and hopefully, this will help you make the right choice for your kids. Because let’s face it, teaching them about savings now could set them up for financial success later on.
Types of Savings Accounts for Kids and How They Work
1. Traditional Savings Account
The first type of savings account I set up for my kids was the classic, good ol’ Traditional Savings Account. It’s the one most banks offer, and it’s as simple as it gets. You open an account with a bank, deposit money, and earn a small amount of interest over time. The interest isn’t huge, but it’s a start.
I was initially worried that my kids wouldn’t understand the concept of interest, but it turned out to be a great learning opportunity. We’d sit down together to see how their balance grew each month, even if it was just a few cents. Over time, they started to see how saving a little bit at a time adds up. With this type of account, you can also typically access the money anytime, which is great if they need it for something important.
Pros: Easy to set up, no minimum balance required, and it teaches the basics of saving and interest.
Cons: Low-interest rates compared to other types of accounts.
2. High-Yield Savings Account
Now, if you’re looking for something that offers a little more in terms of growth, I highly recommend a High-Yield Savings Account. This was a game-changer for me when I set one up for my kids. It’s similar to a regular savings account, but it offers a higher interest rate, which means their money grows faster.
When I set it up for my oldest, the bank offered around a 2% interest rate, compared to the usual 0.1% in a traditional account. While it’s still not a ton, it’s definitely a step up, and the difference over a few years is pretty noticeable. The only downside? You might need a higher minimum deposit to open the account, but once it’s open, it’s pretty straightforward.
Pros: Higher interest rate, which helps your money grow faster.
Cons: Some require a higher minimum deposit or balance to earn the advertised rate.
3. Custodial Account
If you’re looking for something a bit more long-term, a Custodial Account could be the way to go. Essentially, this account is managed by a parent or guardian until the child reaches a certain age, usually 18 or 21. What I love about this type of account is that it can be opened at a bank or investment firm, and you can invest in things like stocks or bonds, which could help grow your child’s savings exponentially over the years.
I’ve always been a fan of teaching kids the value of investing, so I set up a custodial account for both of my children. The idea is that, as they get older, they’ll have access to more than just cash—they’ll have investments that hopefully generate better returns. It’s a great way to introduce kids to the world of investing at a young age.
Pros: Potential for higher returns if invested wisely.
Cons: You control the account until they reach adulthood, and there can be fees for certain types of investments.
4. Money Market Account
Next up is the Money Market Account, which is a step up from a traditional savings account but usually requires a larger deposit to open. This account offers better interest rates and often comes with check-writing privileges or debit card access. I had my eye on one for my younger child, who was starting to understand the value of money a bit more and was eager to save for larger things, like a bike.
Money market accounts are great for older kids who want to save for something specific and might need access to the funds more frequently. While it does offer better interest than a traditional savings account, it may require a higher minimum balance, so it’s important to keep that in mind.
Pros: Higher interest rates and some offer check-writing or debit card access.
Cons: May require a higher minimum balance to avoid fees.
5. Education Savings Account (ESA)
If you’re looking to save for your child’s education, an Education Savings Account (ESA) is something you should definitely consider. This account is specifically designed to help you save for educational expenses, like tuition, books, and other costs related to school. The best part? The money grows tax-free as long as it’s used for qualified education expenses.
I set up an ESA for both of my kids when they were young, and it has grown nicely over the years. I love knowing that the money is earmarked specifically for their future education, and I don’t have to worry about the tax burden that comes with regular savings accounts. It’s a small step now, but I know it’s going to make a big difference when it comes time for them to head to college.
Pros: Tax-free growth, specifically for educational expenses.
Cons: Contributions are limited to $2,000 per year per child.
6. Youth Savings Account
Finally, if your child is a bit younger or just getting started, many banks offer a Youth Savings Account specifically for kids. This is usually a very basic account that has lower fees, a low or no minimum balance, and a simple savings structure. Many banks also offer financial education tools that help kids learn about money management in a fun, interactive way.
When my kids were really young, we set up a youth savings account for each of them. The goal was to get them used to the idea of saving and watching their money grow. They were thrilled when they saw their balance increase, and it sparked a lot of conversations about the value of money and how to make good financial decisions.
Pros: Easy to open, designed for kids, often comes with educational tools.
Cons: May have low-interest rates and limited features.
Final Thoughts
Opening a savings account for your kids is one of the best ways to set them on the path to financial literacy and independence. Whether you choose a traditional savings account, a custodial account, or something designed specifically for education, each type of account has its benefits. It’s all about finding the right fit for your child’s age, goals, and how involved you want to be in managing their money. Trust me, it’s a small investment now, but it can pay off in big ways down the road. Happy saving!
