Opening a bank account for your kids not only helps with building savings for when they’re old enough to use them, but can go a long way to helping them establish good money habits that continue well into their adult life.
Opening a kids bank account is the perfect way to start your child’s journey to financial success. However, it can be overwhelming trying to understand the details of whose name the account should be in, who can access the funds in the account and what happens when your child turns 18. Before you take your son or daughter to your local bank branch to sign up for an account, make sure you know the ins and outs of managing a children’s bank account.
Kids bank accounts come in two forms: savings accounts and accounts that come linked to a debit card. One defining feature of a kids bank account is that it typically has low to no monthly account maintenance fees, and some even come with no opening deposit minimums. This makes opening a bank account for your child an attractive way to help them build their savings. In addition, some banks have programs specifically designed to help kids learn about money and to encourage them to save.
There are four different types of kids bank accounts you could open for your little one:
Also known as 529 plans, these types of accounts are set up to save for your child’s future education. The funds from these accounts are to be used solely for educational purposes, be it to cover elementary or secondary school expenses or college tuition. The number one perk of these savings accounts is that the earnings from the investment as well as any withdrawals from the account are not taxable for federal income tax purposes.
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The two most common custodial accounts are Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts. Since individuals under the age of 18 are not allowed to open savings accounts under federal law, custodial accounts were created. Basically, these are accounts that are the property of the minor but are managed by an adult, the custodian, until they reach the age of maturity. Custodians are not allowed to make withdrawals from these types of accounts for their own benefit, since the account is considered the minor’s property. Once the minor reaches the age of 18, the account is usually converted into a regular savings account.
This is a checking account that is opened up jointly by a minor and an adult — or parent and child. They both have access to the funds in the account, and the money is owned jointly until otherwise specified. With many of these accounts, banks allow parents to put withdrawal limits on the account and track their child’s spending habits to teach them responsible money habits.
These accounts allow kids to learn the importance of saving money and financial responsibility from an early age. Many don’t have minimum opening deposits, and even more have zero monthly maintenance fees, which means your children’s money will earn interest even faster.
While the exact paperwork you’ll need to fill out and provide to open up a kids bank account will vary based on the financial institution you decide to open with, you’ll generally need to provide:
Look at the different kids savings accounts out there and compare the current interest rates, the potential interest earned over 12 months (with a $5,000 deposit) and the conditions that apply.
| Account | Interest rate | Interest earned over 12 months | Conditions that apply |
|---|---|---|---|
| Bank of America Minor Savings Account | 0.03% | $1.50 | Minimum opening deposit of $25. No monthly maintenance fee. Total of six transfers and withdrawals each monthly statement cycle without a $1 withdrawal limit fee. |
| Capital One Kids Savings Account | 1.00% | $50 | No minimum opening deposit. No monthly maintenance fee. Limit of six withdrawals and transfers per calendar month. |
| Alliant Credit Union Kids Savings Account | 1.45% | $72.50 | Minimum $5 opening deposit, provided compliments of Alliant. No monthly maintenance fee if you sign up for eStatements. Open to children ages 12 and younger. |
| Boeing Employees Credit Union Early Saver Account | 6.17% on the first $500, 0.10% after that | $35.35 | No minimum opening deposit. No monthly maintenance fee. |
| PNC ‘S’ is for Savings Account | 0.01% | $.50 | Minimum $25 opening deposit. No monthly maintenance fee. |
| TD Bank Simple Savings Account | 0.05% | $2.50 | No monthly maintenance fee. |
| Fifth Third Bank Goal Setter Savings Account | 0.01% | $.50 | No monthly opening deposit. No monthly maintenance fee. |
There are a host of banking programs available for children in the United States. These programs are designed to educate and engage your child in money-related topics such as saving and budgeting. In addition, each bank offers different rewards and incentives that may be worth considering when looking for a bank account to open for your child.
| Program name | Features |
|---|---|
| School Savings™ program | The only school banking program approved by the U.S. Department of Education, School Savings is a social enterprise that allows children to make savings deposits at school through Websaver, its secure online school banking technology system. The program includes an online savings register and animated budgeting app to help kids learn about the importance of taking control of their finances and budgeting for purchases. There’s an incentive system as well that encourages kids to save money throughout the year in order to win prizes. |
| Fifth Third Bank Young Bankers Club | This financial literacy program geared toward fifth-grade elementary school students teaches kids about basic money calculations, how to create a budget and use it, the basics of the stock market, and gives them practice in managing a bank account. The 5- or 10-week program is taught inside the classroom, either by a Fifth Third Bank employee or mentor, or teachers themselves. The customized curriculum meets national educational standards for fifth-grade mathematics. |
| TD Bank WOW!Zone | TD Bank runs a comprehensive financial literacy program that offers lesson plans to teachers from kindergarten through 12th grade. Children under 12 will learn about the value and worth of money through videos that follow the adventures of Penny and her friends. Each episode focuses on a different aspect of money, with complementary quizzes and games to reinforce the information. For teens, TD Bank offers budget worksheets, tips for saving and valuable money lessons that students can turn into lifelong habits. For young investors, they have an experiential learning experience through playing a virtual stock market game. All of the curriculums are designed to meet the National Council of teachers of Mathematics Standards. |
| Teach Children to Save Day | This is a free national program sponsored by the American Bankers Association, which organizes banker volunteers to educate children on the importance of developing budgeting and savings habits early in life. Held on Friday, April 20th this year, banks are encouraged to go into schools to teach children valuable lessons on what money is, how to make basic calculations and manage a budget, why it’s important to start saving now and more. |
Once your child’s bank account starts earning interest, their investment income is subject to what is referred to as the “kiddie tax.” Any investment earnings over $2,100 are taxed at the rates that apply to trusts and estates. This kiddie tax applies to investment income of children under 19 years old and full-time college students under the age of 24.
Here are the rates for 2018:
| If taxable income is between: | The tax due is: |
|---|---|
| $0 – $2,550 | 10% |
| $2,551 – $9,150 | 24% |
| $9,151 – $12,500 | 35% |
| $12,501 + | 37% |