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Kids & Money: Open a Kids Savings Account

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Piggy BankOne of the best ways to help your child learn the value of money, and to help him or her improve financial habits, is to make use of a savings account. Your child can watch the balance grow, and learn the value of earning interest, and saving up for a future goal.

A savings account can be a good way for children to get excited about reaching goals. Such an account can be used as a way to set benchmarks, and you can find ways to encourage your children to work toward reaching their savings goals.

Opening an Account

Your child can’t open an account on his or her own. However, you can help by opening an account with him or her. You will need your own information, as well as information about your child, including a Social Security number. Usually, if you have a bank account at a financial institution, you can open a child’s savings account that is in some way related to yours. In these cases, it is usually fairly simple to open an account for your child.

Brick and Mortar, or Online?

Another question you have to answer is whether or not to open an online savings account or go to a brick and mortar bank. The online account will most likely provide your child with a higher rate of return (even though no savings account will offer very high interest yields) than a brick and mortar institution.

However, there are other considerations beyond just the difference in interest. A brick and mortar bank often provides programs that are designed to encourage children to save. These banks have special accounts, and your child might receive a passbook. Often, as a gift for opening an account, the child receives some type of piggy bank, or other way to keep coins and bills. On top of that, when your child reaches certain milestones, prizes such as t-shirts, toys, and other items might be provided.

For younger children, it might be worth it to start out with a brick and mortar account, just so that they receive the rewards for saving. Additionally, watching the money add up in the passbook can be very encouraging for many children. This can get them excited about saving, and keep them interested in developing good money habits.

As children grow, though, it might be worth it to switch to an online account. When children begin to understand the importance of interest, and move beyond the interest in simple prizes, it might be worth it to transition to an online account. Your child can keep track of deposits using computer software. You can also set up your own rewards system, designed to motivate your child when he or she reaches certain levels of saving.

Bottom Line

At first, your child is likely to need some sort of reward to encourage saving. Using a savings account can be one way to encourage the habit of saving. Properly motivated, your child can become excited about banking (the same way you do), and watching his or her account grow.

(Photo: 401K)

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8 Responses to “Kids & Money: Open a Kids Savings Account”

  1. Matthew Coan says:

    ING Direct has great options for opening a kids savings account with their Kids Savings Account.

  2. I agree, this is an essential teaching tool for children. Even better, teach them how to acquire money to put into the account, other than gifts – sell old toys, get a small job, anything that teaches them how to earn their own money is a good lesson.

  3. Paul says:

    How can children learn about earning interest when bank’s don’t pay any interest? In my opinion, parents might better set up an “at home bank account” for their kids, keep accurate deposit records and reward their progeny with a 5% interest bump, compounded daily. The IRS doesn’t even need to know.

  4. Money Infant says:

    We opted for brick and mortar for the reason you stated…she gets to see the passbook every time a deposit is made and more importantly when interest is posted. She also gets to physically visit the bank giving her a physical connection between the interest payments and a business.

  5. Frugal says:

    My middle schoolers are not excited anymore with their passbooks as the banks pay pennies in interest.

    I am thinking of going to ING Direct but am open for suggestions. My kids are too young to work outside and chore money is a routine. We need something new and different to excite them again.

  6. Shirley says:

    We moved the grandchildren’s savings accounts from our CU to ING for the boost in interest. None of them have access to the accounts and only one is old enough to understand anything about interest, so I email him with the amounts each month. I’m always glad to get a phone call or email back with a sincere thanks.

    Hopefully as the younger ones get to the point of understanding numbers, their parents will keep a spreadsheet for them in order to help see deposit and interest growth learning.

  7. Carol C. says:

    I’ve a question about the mechanics of kids using online savings accounts.

    Right now my daughter can walk into the bank with her jar full of money and make a deposit into her savings account. If she had an online account how would she actually deposit money in to it herself? Or would I have to do it for her by writing a check?

    If that’s the case it seems she might loose a bit of the direct-connection experience between her actions and the benefit.

    • Frugal says:

      If you open an online account for her, she is going to lose the direct connection experience as she will not be able to take her jar to the bank.

      In any case, if you open an online account for her, let her deposit the coins in your account and you can “transfer” in to her online account. Kind of like having both objectives met – partially.


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