Savings account for child?

[scophreak]

Hello all,

My first new topic, so thanks in advance for any assistance.

Our son (8 y.o.) is interested in opening a savings account, which we fully support. That said, I am fundamentally against the idea of a typical B&M bank that offers only a token amount of interest. From what I can gather, the going APY at the typical B&M bank is somewhere in the neighborhood of 0.03%. We would obviously like to get a better return than that. After all, part of the appeal here is that he will be able to see how interest works to make his $ grow.

Our intention is to open a joint account where we are co-owners along with our son. I have looked at some of the online favorites, but have thus far struck out - both Ally and Marcus (where we have existing accounts) do not allow minors to be co-owners of an account. Does anyone know of a reliable option where this is allowed? From my understanding, this is a bank-to-bank policy and there is no blanket rule prohibiting this.

Thanks again for your help!

[marklar13]

I've had a good experience with capital one 360. They have an intuitive website and app, and consistently are at the high end for rates. I haven't used their "kids" account specifically, but they do have that option, and it seems like it fits what you want.

[RickBoglehead]

We did the Dad Bank. Paid 5% interest, compounded annually. Simple spreadhsheet.

[sport]

Instead of a joint account, you can/should open a UGMA (wrong letters?) account. With this type of account, a parent controls the account, but the money belongs to the minor child. When the child reaches a specified age (18 or 21 depending on your state) the account should be retitled to the child.

[dm200]

Hello all,

My first new topic, so thanks in advance for any assistance.

Our son (8 y.o.) is interested in opening a savings account, which we fully support. That said, I am fundamentally against the idea of a typical B&M bank that offers only a token amount of interest. From what I can gather, the going APY at the typical B&M bank is somewhere in the neighborhood of 0.03%. We would obviously like to get a better return than that. After all, part of the appeal here is that he will be able to see how interest works to make his $ grow.

Our intention is to open a joint account where we are co-owners along with our son. I have looked at some of the online favorites, but have thus far struck out - both Ally and Marcus (where we have existing accounts) do not allow minors to be co-owners of an account. Does anyone know of a reliable option where this is allowed? From my understanding, this is a bank-to-bank policy and there is no blanket rule prohibiting this.

Thanks again for your help!

Look for a credit union that has a local branch - as well as online access. Help him verify/calculate the dividends (interest) paid on the account and see the different rates of return on different types of account.

PenFed offers a 2.00% APY online savings account. https://www.penfed.org/accounts/premium-online-savings

Some credit unions also offer special childrens' accounts.

[dm200]

Hello all,

My first new topic, so thanks in advance for any assistance.

Our son (8 y.o.) is interested in opening a savings account, which we fully support. That said, I am fundamentally against the idea of a typical B&M bank that offers only a token amount of interest. From what I can gather, the going APY at the typical B&M bank is somewhere in the neighborhood of 0.03%. We would obviously like to get a better return than that. After all, part of the appeal here is that he will be able to see how interest works to make his $ grow.

Our intention is to open a joint account where we are co-owners along with our son. I have looked at some of the online favorites, but have thus far struck out - both Ally and Marcus (where we have existing accounts) do not allow minors to be co-owners of an account. Does anyone know of a reliable option where this is allowed? From my understanding, this is a bank-to-bank policy and there is no blanket rule prohibiting this.

Thanks again for your help!

I don't fully agree. I think part of the benefit/learning for an 8 year old is going into a B&M branch (maybe I am dating myself??).

I suspect a local branch of a credit union might be more flexible and offer a better rate on savings. Then, get online access to review balances, posting of interest, etc.

Some credit unions offer special, higher rate, savings accounts for children.

[tyrion]

My kids are a little older (pre-teens) but we did both.

First we opened kids savings accounts at the local credit union. So they got to experience going in, depositing checks, seeing their balance slowly rise.

Then we set up UGMA accounts at Ally. Now most of the money is there earning 2.2%

[megabad]

+1 for local credit union. Yes the interest will be tiny (but bigger than big banks), but how much money is a young child going to put there at this moment? I think missing out on $1 of interest each year is a fair price to pay for the learning experience garnered with a local B&M office that can deal directly with green cash and coins. Actually, the low interest could give you another teaching opportunity down the road when child can choose a new banking home with higher interest.

[scophreak]

I appreciate the input thus far. To clarify a bit, here are some of my thoughts on B&M options:

1) I don't know the last time I personally stepped into a B&M branch. Virtually all of my banking needs are served with online or app-based transactions.
2) My crystal ball suggests that any in-person B&M interactions will only become LESS typical moving forward. As much of this is a teaching/learning process, why not teach to what the expected experience will be? What is the true value of the B&M approach if this is not the likely way my child will approach banking in the future?
3) interest rates (though admittedly we're not talking a large $ amount here) are typically << online options. I don't see a truly compelling reason to forego the additional interest, when that is one of the primary reasons for moving beyond the "piggy bank" approach.

[dm200]

I appreciate the input thus far. To clarify a bit, here are some of my thoughts on B&M options:

1) I don't know the last time I personally stepped into a B&M branch. Virtually all of my banking needs are served with online or app-based transactions.
2) My crystal ball suggests that any in-person B&M interactions will only become LESS typical moving forward. As much of this is a teaching/learning process, why not teach to what the expected experience will be? What is the true value of the B&M approach if this is not the likely way my child will approach banking in the future?
3) interest rates (though admittedly we're not talking a large $ amount here) are typically << online options. I don't see a truly compelling reason to forego the additional interest, when that is one of the primary reasons for moving beyond the "piggy bank" approach.

Guess I am an "Old Fart"!

Yes - lots and lots of folks now do everything "online".

Maybe a B&M branch would be an "ancient history" lesson!

[tyrion]

I appreciate the input thus far. To clarify a bit, here are some of my thoughts on B&M options:

1) I don't know the last time I personally stepped into a B&M branch. Virtually all of my banking needs are served with online or app-based transactions.
2) My crystal ball suggests that any in-person B&M interactions will only become LESS typical moving forward. As much of this is a teaching/learning process, why not teach to what the expected experience will be? What is the true value of the B&M approach if this is not the likely way my child will approach banking in the future?
3) interest rates (though admittedly we're not talking a large $ amount here) are typically << online options. I don't see a truly compelling reason to forego the additional interest, when that is one of the primary reasons for moving beyond the "piggy bank" approach.

I'll counter with my reasons for using a brick and mortar credit union for the first few years of kids banking.

1. In this video game day and age, I want to attach as much 'reality' to the situation as possible. Sure, it's easier to snap a picture and deposit online. But the kids are more likely to remember physically handing the check to the teller and then signing their name and getting a paper receipt for the deposit. It makes it a more tangible experience.

2. There are often perks to going to the branch. Sometimes there is free popcorn. There is always free coffee for me. I remember getting a lollipop in the pneumatic cannister when I used to go through the drivethru bank with my Mom. Again, going in person makes it memorable.

3. Making the time to physically go to the bank shows the kids that the activity has value. They also get to think about what they're depositing - oh, it's that check from Grandma that's meant to go towards their future college costs. So now they get some reinforcement that college should be in their future. It also allows us to talk about why we deposit money in the bank to plan for the future, and how they should be saving a part of all they earn for the future. It opens up topics of conversation to have around money that will hopefully help influence them positively in the future.

[sport]

Going to the bank to make a deposit makes kids feel really "grown up". It is more of an "adult thing" than a "kids thing". If the bank is within walking distance of home, so they can go by themselves, so much the better. Even if it is old-fashioned, it is an introduction to the financial world and a great hands-on learning experience.

[Super Hans]

Has anyone succeeded in opening an account with a real, physical passbook in recent years? I think this would be the ideal way to introduce kids to the power of investing their tuppence wisely in the bank. It worked for me.

https://www.youtube.com/watch?v=XxyB29bDbBA

[dm200]

Has anyone succeeded in opening an account with a real, physical passbook in recent years? I think this would be the ideal way to introduce kids to the power of investing their tuppence wisely in the bank. It worked for me.

https://www.youtube.com/watch?v=XxyB29bDbBA

No - I am (and have been) in this business foe many decades and I don't think there are any true "passbook" accounts left. The closest thing is for the account holder to keep a record in some kind of book.

[aristotelian]

My 9 and 11 year olds have accounts at our local credit union (technically they are joint accounts with me). They do not earn interest but the amount of interest that they could earn is so small that I don't mind. I think it's more important to get them familiar with the idea of depositing checks and the bank storing their money. I have offered to invest on their behalf and so far they aren't interested but I would do a "Dad Bank" solution when they are ready.

[HomeStretch]

Agree with using a B&M bank initially (despite the lower interest rates) for the educational value.

My child looked forward to the in-person bank trips to deposit coins and to make passbook deposits. Learned a lot by meeting bank manager, how to interact with tellers, how to use coin machine and ATM machine, using safe deposit boxes, how to write a check, etc.

Eventually he switched to an online bank for better rates and ease of doing transactions online. It was a good learning experience. When it came time for college, many of his friends had no idea how to use an ATM, etc.

[dm200]

Agree with using a B&M bank initially (despite the lower interest rates) for the educational value.

My child looked forward to the in-person bank trips to deposit coins and to make passbook deposits. Learned a lot by meeting bank manager, how to interact with tellers, how to use coin machine and ATM machine, using safe deposit boxes, how to write a check, etc.

Eventually he switched to an online bank for better rates and ease of doing transactions online. It was a good learning experience. When it came time for college, many of his friends had no idea how to use an ATM, etc.

Some credit unions have free coin counters at their branches.

[Grt2bOutdoors]

Open a account at local brick and mortar bank, for the experience. My local branch hands out lollipops to kids and coffee for the adults. The next $100, open a no minimum account at Fidelity, UTMA and move to the next level of learning about saving and investing. The world is your kids oyster.

[N1CKV]

Some credit unions offer special, higher rate, savings accounts for children.

I came here to say this. Credit Unions are more invested in the community, and as such do things such as give a minor higher interest for the sake of getting them interested in savings.

[greg24]

Our kids have accounts at the local credit union. They both have a youth savings account that yields 0.10%. They both have a youth 3-month CD which yields 0.50% and perpetually rolls over.

I make them read the quarterly statements that come in the mail. I like that they have two accounts, and they're learning how to maximize their interest by making sure deposits go into the CD.

I think it is valuable to have them visit a physical bank/CU. They'll learn how to do online banking on their own eventually, they don't need parents to show them that.

[Broken Man 1999]

+1 for local credit union. Yes the interest will be tiny (but bigger than big banks), but how much money is a young child going to put there at this moment? I think missing out on $1 of interest each year is a fair price to pay for the learning experience garnered with a local B&M office that can deal directly with green cash and coins. Actually, the low interest could give you another teaching opportunity down the road when child can choose a new banking home with higher interest.

Better check to see if the credit union has tellers, otherwise you will be doing business online at the credit union, rather than at your home, or a random ATM.

There are no tellers at our credit union. Instead, there are terminals at various branches that allow a dialog with a centrally located group of tellers. You can deposit checks/ money, withdraw money, transfer money from one account to another, etc.,but most of those activities don't require interaction with a teller, anyway. One thing I do like when visiting a branch, I'm probably 10-15 years younger than most of the adults transacting business.

Our kids used to love going thru the credit union drive-thru as a teller would give them a lollipop.

Eh, things change, time marches on with ya, or without ya.

Broken Man 1999

[megabad]

Better check to see if the credit union has tellers, otherwise you will be doing business online at the credit union, rather than at your home, or a random ATM.

Unfortunately good tip and rings true with me. If I am being honest, I just recommended a local small bank to someone for this reason (they are in a pretty rural area in my county). They gave their two kids lolli pops when they went in the first time if that gives you an idea of how old style this bank was. However, I still strongly prefer a local credit union if you can find an "old style" one.

[CascadiaSoonish]

I've had a good experience with capital one 360. They have an intuitive website and app, and consistently are at the high end for rates. I haven't used their "kids" account specifically, but they do have that option, and it seems like it fits what you want.

Ditto Capital One 360. Their "Money" account comes with a debit card and plenty of tools for parental monitoring of spending. Easy to link to high-interest accounts too. It's worked out well as a teaching tool as well as a money management tool for our elementary/middle school aged kids. Particularly nice that allowance deposits can be automated.

[Thegame14]

Hello all,

My first new topic, so thanks in advance for any assistance.

Our son (8 y.o.) is interested in opening a savings account, which we fully support. That said, I am fundamentally against the idea of a typical B&M bank that offers only a token amount of interest. From what I can gather, the going APY at the typical B&M bank is somewhere in the neighborhood of 0.03%. We would obviously like to get a better return than that. After all, part of the appeal here is that he will be able to see how interest works to make his $ grow.

Our intention is to open a joint account where we are co-owners along with our son. I have looked at some of the online favorites, but have thus far struck out - both Ally and Marcus (where we have existing accounts) do not allow minors to be co-owners of an account. Does anyone know of a reliable option where this is allowed? From my understanding, this is a bank-to-bank policy and there is no blanket rule prohibiting this.

Thanks again for your help!

why not open a savings account and have it buy 1 year CD's for him, they are around 2.5%

[FrugalProfessor]

We did the Dad Bank. Paid 5% interest, compounded annually. Simple spreadhsheet.

+1.

We use a Google sheet. 8% interest (ouch!). My oldest daughter (12) has close to a grand and understands compound interest and opportunity cost better than most adults. Other four kids are tracked on same sheet. Super easy to maintain. Every purchase and income logged each month.

You don't need a real bank to teach how money works.

[learning_head]

Probably a dumb question but ... is it really important for kids to have a bank account? Curious what it teaches that can't be taught more efficiently to a young adult. I did not have one until I was 19 as I recall and I can't think of what I might have missed.

If the point is to teach "saving" discipline, I would have thought tangible cash they can touch or see would be more valuable.

As for compound interest, kids might only get disappointed with what would seem like waiting forever for a little bit of interest to accumulate on their (usually) small "investments".

[miamivice]

Probably a dumb question but ... is it really important for kids to have a bank account? Curious what it teaches that can't be taught more efficiently to a young adult. I did not have one until I was 19 as I recall and I can't think of what I might have missed.

If the point is to teach "saving" discipline, I would have thought tangible cash they can touch or see would be more valuable.

As for compound interest, kids might only get disappointed with what would seem like waiting forever for a little bit of interest to accumulate on their (usually) small "investments".

Having a bank account for a child teaches them that it's ok to set aside money for the future. It is a place for them to put money that they have earned or given and keep it safe for some point in the future when they want it rather than spend it right away. It teaches them to trust the bank to hold their money because the child can ask for the money back in the future. These concepts, while well known to us Bogleheads, have to be taught to children.

That isn't to say that kids with savings accounts grow up to be savers and kids without savings accounts grow up to be spenders. But it provides an opportunity for children who might grow up to be savers to practice and develop that habit at a young age.

I think the interest concept is way over rated. For the first half of a person's life, interest (as well as investment returns) makeup a small percentage of one's net worth. It's not until the later years that interest (investment returns) begin to be very significant. (At least my case.)

[dm200]

Probably a dumb question but ... is it really important for kids to have a bank account? Curious what it teaches that can't be taught more efficiently to a young adult. I did not have one until I was 19 as I recall and I can't think of what I might have missed.
If the point is to teach "saving" discipline, I would have thought tangible cash they can touch or see would be more valuable.
As for compound interest, kids might only get disappointed with what would seem like waiting forever for a little bit of interest to accumulate on their (usually) small "investments".

Having a bank account for a child teaches them that it's ok to set aside money for the future. It is a place for them to put money that they have earned or given and keep it safe for some point in the future when they want it rather than spend it right away. It teaches them to trust the bank to hold their money because the child can ask for the money back in the future. These concepts, while well known to us Bogleheads, have to be taught to children.
That isn't to say that kids with savings accounts grow up to be savers and kids without savings accounts grow up to be spenders. But it provides an opportunity for children who might grow up to be savers to practice and develop that habit at a young age.
I think the interest concept is way over rated. For the first half of a person's life, interest (as well as investment returns) makeup a small percentage of one's net worth. It's not until the later years that interest (investment returns) begin to be very significant. (At least my case.)

Yes. Does not work for all children, but works for many, in my opinion.

[decapod10]

I have young kids also and I'm looking into savings accounts for my kids also at this point.

To me personally, it's part of longer term / more comprehensive plan.

Step 1: Understand what money is and how it works. Learn that they need to save money if they want to buy something. This just requires a piggy bank and cash which is what they have now.

Step 2: Learn what a bank is and how it works. How do you deposit money? How do you withdraw money? Where is my money going? How do I know how much money I have? Need to open a bank account for this obviously

Step 2b: Learn what interest is. If the bank doesn't give enough interest for them to understand, I'll probably just pay them "interest" like 5% or whatever. Something tangible.

Step 3: Learn how to manage money. How to balance a check book. Figuring out how much money I have, how much I have do I have to spend? Learning how to forecast future expenses so that they don't accidentally spend my rent money and also try to save a little extra on the side in case something comes up that they want to spend money on. I haven't completely worked this out yet, since it's years away, but I'm thinking I will give them $X per month to cover their "expenses" as well as extra play money, and drum up some expenses they have to pay so that they have to remember to keep enough to pay them.

Step 4: Credit cards. Add them as an authorized user on my credit card. Let them use it and be responsible for paying it off. Learning what all the different balances mean on a credit card report, what minimum payments mean, etc.

Ideally I'd like to teach them all of this before they go to college. It's much easier to instill good habits in children when they're younger and when you're still an active part of their life. It's one thing to know how something works, it's another thing to go through the motions of remembering to check their balances and their budget. I'll have access to all their accounts, so I can see if they're doing a good job or not and help guide them if needed. I expect they will forget at the beginning. They may screw up and "overdraw" their account. The penalty for this when they are 15 is just that I fix things and they get in trouble with dad. The penalty for forgetting their rent and their credit card payments when they are 20 in college is potentially much worse.
When my kid is 19 and in college, I can try to teach them all this stuff, but I have no way of knowing if it sticks, and it's pretty easy for them to just say "yeah OK dad" and not do it. I want to be confident in their skills by the time they leave. I'd rather not have to pry into their finances all the time when they are adults.

[learning_head]

Having a bank account for a child teaches them that it's ok to set aside money for the future. It is a place for them to put money that they have earned or given and keep it safe for some point in the future when they want it rather than spend it right away.

Would not a simple wallet or piggy bank act the same way? Plus, as I mentioned, would have something more tangible for them to look at?

It teaches them to trust the bank to hold their money because the child can ask for the money back in the future.

I see, Ok. When I got my accounts setup at 19, somehow I trusted the banking system (perhaps even a little more than today!). Perhaps some kids don't have that trust without having an account since young age.

[miamivice]

Having a bank account for a child teaches them that it's ok to set aside money for the future. It is a place for them to put money that they have earned or given and keep it safe for some point in the future when they want it rather than spend it right away.

Would not a simple wallet or piggy bank act the same way? Plus, as I mentioned, would have something more tangible for them to look at?

A piggy bank would work, except that most kids spend money in the piggy bank after a few months. A savings account teaches that you save money for a very long time, like high school or college. You save money without even having a purpose to save it. A piggy bank or wallet doesn't teach that.

[decapod10]

Having a bank account for a child teaches them that it's ok to set aside money for the future. It is a place for them to put money that they have earned or given and keep it safe for some point in the future when they want it rather than spend it right away.

Would not a simple wallet or piggy bank act the same way? Plus, as I mentioned, would have something more tangible for them to look at?

It teaches them to trust the bank to hold their money because the child can ask for the money back in the future.

I see, Ok. When I got my accounts setup at 19, somehow I trusted the banking system (perhaps even a little more than today!). Perhaps some kids don't have that trust without having an account since young age.

To me, it's not just about the saving aspect, it's teaching them how to manage their money. It's harder to manage when you're working with more abstract things like bank accounts. They need to get used to using bank accounts to pay for things and managing money when it's just a bunch of numbers on a computer screen. Remembering to check their accounts when they spend money, things like that.

[dm200]

It never hurts to plant a "good seed" for a child.

Our attempts to instill the value of "saving" (various ways) to our son as a child, teen or young adult were (at those times) complete failures.

Now, decades later, he has become much more financially responsible. My guess is that the many seeds we planted decades ago may have helped.

[cowdogman]

For an 8 year old, I would use the "parent bank" as somebody else suggested.

When I did this for my older son there was an app or website available that mimicked a bank. You could set it up like a bank account, allowing deposits and withdrawals and monthly interest. There was even a "monthly statement." No actual $$ were involved. I set it up with 20% p.a. interest on deposits--just to teach my son the value of saving/compounding.

I just did a quick search but couldn't find the product I used, but I'm guessing it or an equivalent is out there somewhere.

When he got to high school I set up a Chase "High School Checking" account just so he could have a debit card for emergencies.

[Marengo]

I’ve had a good experience with a UGMA account for my 10 YO at the bank I use. In our case, it’s an online-only bank with high interest rates, but that’s not really the point. When you bank at the same institution, it’s really easy to set up regular transfers for allowance and make ad hoc transfers between accounts when she wants cash, asks me to buy something with her money, or wants to make a deposit. She also appreciates that I know exactly how much is in here account at any given time because I see it when I check my own balances.

She’s very good at understanding abstract concepts, so she doesn’t need to physically enter a bank to understand what’s happening. Honestly, we have better things to do than try to show up at a bank branch during banker’s hours. The ATM and the iPhone are all we need.

[JGoneRiding]

I appreciate the input thus far. To clarify a bit, here are some of my thoughts on B&M options:

1) I don't know the last time I personally stepped into a B&M branch. Virtually all of my banking needs are served with online or app-based transactions.
2) My crystal ball suggests that any in-person B&M interactions will only become LESS typical moving forward. As much of this is a teaching/learning process, why not teach to what the expected experience will be? What is the true value of the B&M approach if this is not the likely way my child will approach banking in the future?
3) interest rates (though admittedly we're not talking a large $ amount here) are typically << online options. I don't see a truly compelling reason to forego the additional interest, when that is one of the primary reasons for moving beyond the "piggy bank" approach.

Your child doesn't get a pay check. Do they appreciate you writing a check? (Mine isn't yet 2 so we are still trying to just get him to not eat the money!) So we have a b&m to deposit the random cash people give him. I suppose I could just keep the cash and transfer money but I just don't see this going well. I plan to get a Schwab account and link them so you can get both benefits that way.