Learning how to save money and the benefits of saving money should start early. Opening a savings account for kids can help your children not only learn to stash away their cash. It can also give them a leg up in life. As the Consumer Financial Protection Bureau reported, children who came from low to moderate income families and who had their own savings account were three times more likely to go to college than kids without an account. Having a savings account also helped to make kids more four times more likely to finish college.
Whether your children are looking to save money to buy a new toy or are looking to the future and saving for college, here's what you need to know about opening a savings account for kids.
Whose Name Should Be on the Account?
Although the money in the savings account belongs to your child, if he or she is a minor, it's likely that your name, or the name of another parent or guardian, will also need to be on the account. Children under the age of 18 can't enter into legal contracts, so they need guardian or parent to act as their custodian. Both of your names will be on the account until the child reaches the age of majority (either 18 or 21). No matter what, the money in the account fully belongs to your kid.
What Type of Account Should You Pick?
There are a few things you want to keep an eye out for when picking a savings account for your child. One thing to be aware of the minimum amount needed to open and maintain the account. Some savings accounts have $25 deposit minimums, others have minimums as low as 1 cent. As long as your child has enough money to meet the minimum requirement, it shouldn't be much of an issue.
It's also important to pay attention to any fees charged by the account. An account that doesn't charge monthly fees is ideal, since your child doesn't want to see his or her hard-earned allowance eaten up by fees every month.
Also, pay attention to the interest rate offered by the account. The higher the rate, the more your child's money will earn. Some accounts only begin to accrue interest once the balance hits a certain amount, so you want to make sure you find an account that helps your child's money grow even if he or she doesn't have a lot to start with.
Your child's goals can also influence the type of account you pick. If he or she is saving for a toy, a car, or another short-term goal, opening a basic savings account makes sense. But if your child is saving for college, it might make more sense to open an account that's geared towards saving for school, such as the Coverdell Education Savings Account.
When Should You Open the Account?
When you should open a savings account for kids depends on a number of factors. First, it can be worth it to wait to open the account until your child has a basic understanding of money. When that happens will vary from child to child. Some kids might be ready for their first savings account at age 5, others might not really be ready until age 8, 10, or even 12.
One option is to have your child stash his or her allowance or birthday cash in a piggy bank. When the bank is full, take your child to the credit union and walk him or her through the process of setting up an account. Making the process of opening a savings account as hands on as possible can help your child really get a better grasp of how money works.
When Should You Deposit Money into the Account?
Part of the fun of having a savings account is putting money into it and watching the balance grow. To help set your child up for a lifetime of saving, you can encourage him or her to deposit money into the account anytime he or she gets some cash. For example, if your child gets a weekly allowance, a weekly trip to your credit union to put some or all of that money into the account can become part of your routine. You want to help your child understand that saving money is part of life and not an occasional thing.
Learning about saving money, how interest works, and how credit unions and banks help protect your money is an essential part of developing financial literacy. The sooner your children have their own savings accounts, the sooner they'll be able to become financially savvy. Contact Coosa Valley Credit Union to learn more about our saving accounts for kids under age 12 today.