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Kids & Money: Open a Kids Savings Account

One 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 [3], 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 [4] 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 [5] 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 [6])