How to open a savings account for a baby or child

Opening a savings account for your child can provide a safe place for their money and allow the funds to earn some interest — all while teaching them about banking and money management.

When setting up an account for a child, parents can choose between a custodial account or a savings account designed for kids. Many financial institutions offer both options, making it relatively simple to find one that’s right for your family.

Types of kids’ bank accounts

The main difference between a custodial account and a kids’ savings account is the way the two types of accounts are structured.

Custodial accounts

A custodial account is an account that parents can set up and manage on their minor child’s behalf, and the child is able to take over the account upon becoming a legal adult. Once a custodial account has been established, any adult can contribute to it — and once a deposit has been made to an account, it can’t be revoked. Custodial accounts come in two varieties, with their main difference being the types of assets they can hold.

• Uniform Gifts to Minors Act (UGMA) accounts: UGMA accounts can hold financial assets such as cash, securities, annuities and insurance policies. These accounts can be opened in all 50 states.

• Uniform Transfers to Minors Act (UTMA) accounts: UTMA accounts are more flexible than UGMA accounts, in that they can hold any type of property, whether it’s tangible or intangible, including real estate, artwork, royalties and patents. Transfers to these accounts are also permitted through inheritance. These accounts can be opened in every state but South Carolina and Vermont.

Unlike a savings account, a custodial account can hold more than just cash. Your ability to include investments provides the potential for larger long-term gains than a savings account. A downside of custodial accounts is that since the assets are owned by a minor, it could impact the ability of the child to get federal financial aid for college.

Both brick-and-mortar and online-only banks may offer UGMA or UTMA accounts, though the annual percentage yield (APY) may be substantially higher with an online bank.

Savings accounts for kids

An alternative to a custodial account is a savings account that’s designed for children under age 18, and there is joint ownership between the parent and child. The best savings accounts for kids may come with perks such as apps with educational content and parental controls, birthday bucks for kids and debit cards for teenagers.

Look for a children’s savings account with no maintenance fees, no minimum balance requirement and a comparatively high annual percentage yield (APY).

What happens when the child turns 18 years old can vary from bank to bank. The account may be converted to an adult savings account, or it may remain jointly held until the owners decide to make changes.

There are many benefits of opening a savings account for a child, such as:

• Helping them learn to plan ahead, as well as stay focused on goals and priorities.

• Teaching them to save for the things they want until they can afford it.

• Showing how their money can grow, thanks to compound interest.

• Giving kids hands-on experience with banking online as well as at a branch.

Learning financial responsibility takes time, so don’t give your child more than he or she is ready to handle. Remember that a joint savings account gives your child access to the money, so some parents may want to choose an account that provides parental controls.

How to open a savings account for a child

In some ways, opening a savings account for a child is very similar to opening one for an adult. Tips to consider when shopping for a savings account for your child include:

1. Open a savings account, not a checking account

Checking accounts are for spending money whereas you’re likely trying to teach your child how to save. It’s advisable to wait until your son or daughter is a teenager or has a job before allowing them full access to a checking account.

You may need to supply some identification documents for your child during the account opening process, such as a social security card or birth certificate.

2. Bank at the branch and online

With your help, your child can sign on to the bank’s website or use its app to learn about managing their account from a smartphone or computer. They can check the account balance, transaction history and interest earned.

Your child may be tech-savvy enough to do basic banking functions online, but it can also be helpful for them to learn proper banking etiquette at a brick-and-mortar branch. When kids receive money for a birthday or doing chores, they may enjoy visiting a branch to hand the money to the teller and receive a paper deposit receipt.

3. Find a bank that promotes financial education

Some banks make saving fun and teach kids good money habits through offerings like mobile app features, online tutorials and birthday bonuses. Ask a banker and check the bank’s website to see what resources they provide for young people.

The website of the Consumer Financial Protection Bureau, a financial regulatory and education agency, is also a good place to find information on teaching your child about money matters.

Best banks for kids’ accounts

Bank accounts for children are available at various banks and credit unions large and small, including:

• Alliant Credit Union
• Bank of America
• Bethpage Federal Credit Union
• Capital One
• Golden 1 Credit Union
• USALLIANCE Federal Credit Union
• Wells Fargo

The best bank accounts for kids typically come with valuable features and perks for children and parents.

4. Look for the highest yields

Search for high-yield savings accounts. Credit unions and online-only banks typically offer the best rates, but don’t just shop for rates. Accounts with the highest rates may not have other features that you want.

5. Avoid account fees and ask about features

Some banks and credit unions waive monthly fees and minimum-balance requirements if the account is for a minor child. Ask about account perks and features, such as online tutorials and parental controls.

6. Don’t forget about saving for college

Most parents can’t afford to wait when it comes to saving money for their child’s education. The average cost to send a child to a public, in-state, four-year institution is $11,260 per academic year, according to College Board. It’s $41,540 for a private, nonprofit four-year school.

There are a variety of ways to build up savings for that daunting expense. You just have to decide which one works best for your family’s goals and circumstances.

• 529 account: Most parents save for college in 529 plans, which allow you to invest after-tax money into diversified, low-cost stock and bond funds and then withdraw the money tax-free for qualified education expenses.
• UGMA/UTMA accounts: UGMA and UTMA accounts are custodial accounts that allow parents, grandparents and others to transfer assets to a minor child. The assets are managed for the child until he or she reaches adulthood. Custodial accounts are considered assets, so they have tax implications. Be wary of these accounts if you suspect your child may one day need financial aid to attend college — custodial accounts can disqualify a student or reduce how much they qualify to receive.
• Education Savings Account (ESA): Also known as “Coverdell ESAs,” these accounts get no special tax treatment from the states, but federal taxes are deferred. The IRS doesn’t tax withdrawals as long as they are used for qualifying education expenses. ESAs have little impact on eligibility for financial aid, even if the student owns the account.

Whatever your financial goals are for your child, make learning about money fun. The rewards will pay off handsomely for both of you.

Children’s savings accounts FAQs

• What do I need to open a savings account for my child?

  To open a savings account for your child, you typically need to provide information including your child’s name, birthdate and Social Security number. You’ll also likely need to provide your own Social Security number, driver’s license number, address, phone number and email address. You’ll likely be able to deposit money in person (if you’re at a branch) or via an electronic transfer from another bank account. Some banks require a minimum opening deposit.
  

• What happens to my kid’s bank account at age 18?

  Often, banks will automatically convert a kid’s savings account to an adult one when a child turns 18 years old. The bank may provide paperwork to be signed by your child at that time.
  

• Can I open a savings account for a baby?

  Yes, you can open a savings account for a baby at banks and credit unions that offer kids’ bank accounts. You must provide the required verification documents to open an account, such as the baby’s Social Security number and birth certificate.
  

Bottom line

It’s never too soon to get your child started on a savings path and a kid-friendly savings account can go a long way toward establishing good money-saving habits.

They’re not only a safe place to keep money and earn a little interest, but they’re also a proven way to help teach your child about money management and saving toward financial goals.

–Freelance writer Kevin Payne contributed to updating this article.