What You Need to Know About a Youth Savings Account
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While a piggy bank or coin jar can be a fun way for your kids to save money, opening a youth savings account can be a more effective way to teach your children about saving money and developing healthy financial habits.
Read on to learn what a youth savings account is and how it works.
What is a Youth Savings Account?
A youth savings account is a deposit or investment account specifically designed for children, usually under the age of 18. The goal of these accounts it to introduce your child to the basics of saving and money management. Many youth savings accounts have a minimum deposit requirement as low as $1 and often provide opportunities to earn interest.
Types of Youth Savings Accounts
While these accounts are typically set up to help your kid save money – whether from gifts, allowances, or their own earnings – it’s important to understand that not all youth savings accounts are the same.
Custodial Accounts
A custodial account is an investment or long-term savings account that you, as the child’s guardian open on their behalf. The earnings in this account grow under your child’s name and may be subject to taxes. These funds can typically be used for a variety of purposes, however, there is usually an age restriction on when you or your child can access the money.
Joint Savings Accounts
A joint savings account, such as a high-yield savings account or a certificate of deposit (CD), can be opened with your child. This type of account typically allows for the use of a debit card and usually offers higher interest rates than a custodial account. However, it may require you to maintain funds in the account for a specific period, or else you may face a penalty.
Educational Savings Accounts
An education savings account or a 529 plan is specifically designed for higher-education expenses. Money saved in a 529 savings plan is usually tax-free if you use it to pay for qualifying educational expenses.
How it Works
Choose a Bank or Credit Union
While many different youth savings accounts are available at various banks and credit unions, it’s important to research the type of institution that is best for you and your child.
Consider picking a trusted institution, maybe where you already bank, with a physical branch for your child to visit.
What to Look For
When choosing a savings account, it’s important to consider the terms that might come with it, such as:
Minimum deposit requirement
Account access
Interest rate
Required Documents
If you do decide to open a youth savings account, it’s important to know what documents are required in order to do so. Depending on the institution, you may need proof of:
Identification (for you and your child) such as a birth certificate, driver’s license, and/or passport
Social Security (for you and your child)
Residence
Place of work
The Bottom Line
Opening a savings account and talking to your kids about it can offer many benefits for their financial future. By teaching your child about saving and financial responsibility, you can:
Encourage early savings habits
Help them develop healthy financial management
Show them the long-term advantages of keeping money in a savings account
Set them up for the future
Questions
Have questions about choosing the right savings account or how to get started? Contact our team of experts.