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Best Bank Accounts for Kids

When my lovely wife was growing up, she’d work small summer jobs and put those savings into a certificate of deposit. Even back then, CDs weren’t exactly offering blockbuster yields (they never do relative to other riskier options), but she diligently contributed them into CDs and left them to to mature. The value in doing so wasn’t in the interest she earned but the habit of saving and understanding the importance of saving.

If that’s a lesson you want to teach your kids, the options today are far better than they used to be. Back then, if you were under 18, it was extremely difficult to open an account at the bank. In my case, I simply gave the money to my parents and they saved it on my behalf. It was good enough. Back then, online banking was just starting and I couldn’t log in to check my balance or do anything banking related. These days, with smart phones and always-on internet, giving your kids an account with their name on it can bestow a sense of responsibility and ownership that will help those lessons stick.

So what are the best bank accounts for kids?

Any Brick & Mortar Bank

Your first stop should be the bank you currently do business with. Check to see if they have a banking option for kids. I don’t have a Wells Fargo account but they have a whole series on planning your child’s financial future [3] that includes a kid’s bank account [4]. What you want to look for are no fees and low minimums, which is generally the case. What you’ll often see is that any minimums or fees apply to the total sum of your deposits at the bank, not just in the individual account.

Another option, and a popular one, is to go with a Custodial accounts (where you are the custodian) which are covered by the Uniform Transfer to Minors Act (UTMA). The gist of the UTMA is that it allows you to gift funds to a minor without their guardian present. In the case of the Custodial account at a bank, it let’s people (relatives, friends, etc) transfer funds to the minor and you manage it. It’s not exactly the same as a kid’s savings account but can serve a similar purpose.

The benefits of a brick and mortar bank is that you can take them to the branch and it might seem more “real” than just looking at a computer screen. You can go through the motions of using an ATM, depositing money with a teller, and all the other fun banking activities we all consider boring chores. 🙂

Online Banks

Online banks will have a kid friendly option – CapitalOne360 (formerly ING Direct) has a kid’s savings account with the same low minimums as any other savings account with them. If you go with an online bank where you already have an account, it makes the opening process and the management as easy as opening up a certificate of deposit for yourself.

The benefit of an online bank is that your interest rate will be much higher and, generally, fees and minimums will be lower. For example, as of this writing, the CapitalOne360 kid’s account yields 0.75% APY. Most brick & mortar savings accounts yield around 0.01% APY. It won’t make a huge difference in accrued interest but I’d rather get a little interest than practically no interest.

Piggy Bank

I know a piggy bank isn’t a typical “bank account” but there’s something to be said about just keeping it simple and playing with a piggy bank. You can learn all the lessons of saving and thrift without the hassle of additional paperwork and taxes. It has worked for centuries and it can work for you even today, especially if your kids are younger. Saving becomes more real when you start putting coins into a piggy bank and counting you savings can be a fun activity.

Have you found a good option for a kid’s bank that I missed?

(Credit: Alan Cleaver [5])