Whether you are a new parent wondering what to do with your baby’s monetary gifts or have older children in desperate need of a savings plan, the time may be right to open a savings account for your offspring.
Children can benefit greatly from becoming familiar with savings accounts and banking at an early age. Not only can they learn how interest can help grow their money, but it can give them firsthand insight into the importance of saving and budgeting.
It also is a confidence booster for a child to be able to deposit and withdraw money themselves, and the decision-making scenarios that savings accounts present can serve them well as adults.
Which account is right for my child?
Before selecting a bank for your child’s savings account, it’s important to do your homework. There are a number of factors to consider when choosing any financial institution, but the best one for your child will likely maximize his or her opportunity to learn about saving.
Here are some things to consider:
- Location To encourage saving, the closer the bank is in proximity to your home, the better. In the case of older children, you also don’t want to be driving across town in heavy traffic so your child can withdraw money for a last-minute trip to the movies with friends.
- Fees and minimum balance requirements Unless your child is depositing a sizable inheritance or plans to keep a significant balance in the account, the most practical account choice will probably require no monthly fee or minimum balance. Also be aware that some banks charge fees if an account is inactive or if there are too many small deposits.
- Interest rates Check around at a number of area banks, in addition to your own, to ensure your child’s checking account is providing competitive interest rates. Compounding interest is a fun lesson for kids to learn, especially when they see their money begin to grow.
- Account type Does your bank offer a special savings account for minors? If not, browse among the available savings accounts to find the one that best suits your child’s savings plan.
- Your child’s saving plan Will the account be used only for depositing birthday money or will the child have full access to their funds? It’s important to consider how the account will be used both now and in the future when deciding what type of savings account is best.
- The fun factor Does the bank offer a plastic piggy bank, educational materials geared to kids or a monetary gift when your child opens the account? Don’t underestimate the little things–they can help teach your children that saving doesn’t need to be drudgery.
Let the learning begin
Many important learning opportunities will arise when your children first open their account. Firstly, youngsters should learn how to make deposits and withdrawals using banking slips. It’s important that older children are allowed to do this themselves (with parental supervision, of course).
Savings accounts can also teach kids how to be safe with their money, and how banks safeguard their depositor’s assets. Talk about what it means to be FDIC insured and how this guarantees that their money will not disappear if the bank goes out of business.
By opening a savings account, children can learn about interest rates and what this means in relation to their savings. Discuss how a higher balance means more money in their pocket at the end of the month, and why it’s important to shop around for the best savings account rates for better returns.
Instead of relying only on the bank’s drive-through or online banking features, go inside with your child routinely to do business with the teller. Let them bring in stockpiles of change to convert to bills. Speak with bank representatives along with your child so they can find out firsthand about other account types and services that banks offer.
Children of all ages can benefit from having a savings account and older kids will likely enjoy being active in depositing and withdrawing their money. Giving them this opportunity is a great way to start them toward a future of saving and spending prudently.