Piggy bank -> savings account for minor child -- options

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Nuvoletta
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Piggy bank -> savings account for minor child -- options

Post by Nuvoletta »

I have two young kids with about $70 each in bills and change in their piggy banks. Time to head to the credit union to make a deposit…but it is so depressing with interest rates being what they are and "teen" accounts don't pay ANY interest the last time I checked. I already fund 529s for each kid -- this money is "theirs". They aren't old enough to earn money, so it can't be an IRA. I was thinking about setting up an individual Vanguard low-cost index fund account for each (likely a $1K minimum I guess), then adding their money to that for them to track? The mechanics would be depositing the money into my bank account and then EFT to Vanguard. I looked at the Vanguard site and didn't see anything like a minor account option, so I was figuring I'd have to set it up under my own. Downside: the kids will see my numbers when we log in, but I might be able to mentally adjust to that.

What are other options? I also have an account with PenFed.
Grt2bOutdoors
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Re: Piggy bank -> savings account for minor child -- options

Post by Grt2bOutdoors »

Charles Schwab offers UTMA accounts for minors, the minimum to open is $100. :)
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sscritic
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Re: Piggy bank -> savings account for minor child -- options

Post by sscritic »

Vanguard offers UTMAs, but you need $1000 minimum to buy a fund.
Open a new Roth IRA, traditional IRA, general savings account, or college savings account, or add a new fund to an existing account.
(two steps in)
College savings accounts include The Vanguard 529 Plan and Uniform Gifts/Transfers to Minor Act (UGMA/UTMA) accounts.
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happymob
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Re: Piggy bank -> savings account for minor child -- options

Post by happymob »

Our local bank pays 2% interest on balances up to $5000 (and 1% up to $10,000) on kids accounts, so we feel reasonably good about putting money there. If we ever hit $5000, we'll likely buy them some I or EE bonds and pay the interest along the way (as they are well under kiddie tax limits).
Khanmots
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Re: Piggy bank -> savings account for minor child -- options

Post by Khanmots »

Why does it have to be a formal account?

My parents played bank for us kids. Kept a spreadsheet with our deposits/withdrawals... heck, you could even decide that the bank of dad/mom pays 5% interest if you wanted.

If you do go this route, just be careful not to fall into the trap of controlling the funds. Offer advice on purchases... but don't disallow because it's a waste of money. When I was young I had to purchase a few overpriced pieces of crap with my hard earned money before the hard lesson about marketing being lies sunk in ;) (and thankfully my parents didn't say I told you so too much... :P )

When they get older (14-16ish?) then look into them gettign an independent account and start teaching how to manage it.
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Zabar
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Re: Piggy bank -> savings account for minor child -- options

Post by Zabar »

You're right that low interest rates on bank accounts make saving money especially frustrating for kids. When my son was younger, we solved that by setting up the "First National Bank of Mom and Dad" by making monthly higher-interest contributions to his account that supplemented what the bank was paying. Since the absolute numbers you're dealing with are quite low, the marginal cost of paying an additional even 5-10% in interest per month should be well worth the learning experience for your kids. Just make sure they know what you're doing and for how long you'll be doing it!

Remember that for a very young child, two months feels like a long-term investment! :D It will be awhile before they really appreciate the concepts you're trying to instill in them. Be patient.
FutureDDS91
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Re: Piggy bank -> savings account for minor child -- options

Post by FutureDDS91 »

How about you just open an Ally Savings Account (or Capital one 360, Discover Bank, etc.) and put the money in there? It will at least be earning some interest, and it will be easily accessible by them in the future.
Grt2bOutdoors
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Re: Piggy bank -> savings account for minor child -- options

Post by Grt2bOutdoors »

Too bad the Treasury doesn't issue paper savings bonds anymore, your kids could have had something tangible in their hands to look at.
I still think the Schwab accounts may work for you, their index fund expense ratio's are very low, but not as low as Vanguard's and that would solve your problem of the kids looking at your account values. A brick and mortar bank would be nice as well, but they don't offer real interest rates, not even for minors. :( Or you could go the route of Bank of Mom and Dad, have them give you the cash by filling out a deposit form, and each month you add in interest at some rate, say 5% annually. Much better than watching account values fluctuate on a computer statement.
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sscritic
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Re: Piggy bank -> savings account for minor child -- options

Post by sscritic »

You could have bought paper I bonds for your kids with your tax refund.
Amount to be used to buy bonds for yourself, your spouse, or someone else.
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Re: Piggy bank -> savings account for minor child -- options

Post by Grt2bOutdoors »

sscritic wrote:You could have bought paper I bonds for your kids with your tax refund.
Amount to be used to buy bonds for yourself, your spouse, or someone else.
I don't provide interest free loans to the US Treasury. :P
But that doesn't mean that someone else could not also give those paper I bonds to my kid with a portion of their refund. :D
Helen looks pretty good these days for her age. Though Albert was looking better when the fixed rates were in the 3%+ range.
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sscritic
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Re: Piggy bank -> savings account for minor child -- options

Post by sscritic »

Grt2bOutdoors wrote:
sscritic wrote:You could have bought paper I bonds for your kids with your tax refund.
Amount to be used to buy bonds for yourself, your spouse, or someone else.
I don't provide interest free loans to the US Treasury. :P
But what are you getting in your checking account? 0.02%? Make an estimated payment on January 15 and file on February 15. For a $500 bond, that will cost you less than a cent in lost interest.
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indexfundfan
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Re: Piggy bank -> savings account for minor child -- options

Post by indexfundfan »

I opened a Capital One 360 account for my kid last year. There was a $25 bonus on opening the account at that time. The kid has a separate login and can only see the balance but cannot move the money out. The interest is currently 0.75%.
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Super Hans
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Re: Piggy bank -> savings account for minor child -- options

Post by Super Hans »

Passbook savings accounts were great when I was learning to save, but I don't know if they still exist anywhere.
Grt2bOutdoors
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Re: Piggy bank -> savings account for minor child -- options

Post by Grt2bOutdoors »

Super Hans wrote:Passbook savings accounts were great when I was learning to save, but I don't know if they still exist anywhere.
They were, those old relics I kept my old cancelled ones as artifacts of a past era. Back then they yielded 5.25% annually, now you can't even find that in a 30 year Treasury bond. :(
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dratkinson
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Re: Piggy bank -> savings account for minor child -- options

Post by dratkinson »

Khanmots wrote:Why does it have to be a formal account?

My parents played bank for us kids. Kept a spreadsheet with our deposits/withdrawals... heck, you could even decide that the bank of dad/mom pays 5% interest if you wanted. ...
If you go this route, remember the monthly savings interest paid is based on 5%/12. Otherwise, can I save with you? :)
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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mickeyd
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Re: Piggy bank -> savings account for minor child -- options

Post by mickeyd »

I got interested in savings as a kid by saving up $18.75 and buying a $25 US savings bond. I don't think they make those things any more. When I was a teen, I cashed them all in and put it in a passbook savings account. Probably still have some of that money in my Vanguard TSM account.
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Nuvoletta
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Re: Piggy bank -> savings account for minor child -- options

Post by Nuvoletta »

OP here -- thanks for all the replies! Now I have to think about all these options and make a decision, haha. I'll report back soon. :)
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