How to open a kids savings account

It's never too early to start teaching kids about money. Kids as young as 3 years old can understand basic money concepts, and the average 7-year-old has ingrained financial habits.

A piggybank may be a good starter tool for teaching your kids money basics, but once they've outgrown that, it's time to level up and introduce a savings account at a bank. A kids savings account works a little differently from those made for adults. Before you head over to your local branch to open one, get the answers to some commonly asked questions about bank accounts for kids.

How does a kids savings account work?

Your child can't open their own account yet, so a kids savings account is a joint account shared by the two of you. You have access to the account and can withdraw or deposit money. You can also keep tabs on your child's activity in the account, such as when they put money in or take money out. As long as you, the parent or guardian, are a joint owner of the account, there's usually no age minimum for your child.

What is a custodial account?

A custodial account isn't the same as a kids savings account. Instead, it's an account used to provide for your child, either their present or future. Common examples of custodial accounts include those used to save for a child's education.

As the custodian of the account, you determine how much gets deposited and, while your child is a minor, how the funds are used. While you may withdraw from the account, you can only use the money for something that benefits your child, such as enrolling them in a summer camp or paying for their school.

Once your child turns 18, the account becomes fully theirs.

Questions to ask before opening an account with your child

Each bank has specific rules about savings accounts for kids. Some have separate kids accounts, which may earn a different interest rate than the bank's standard accounts. Before you open an account, it's a good idea to ask a few questions, such as:

• Can my child make deposits or withdrawals without me? As your child gets older and becomes more independent, will they be able to access their money or add to their account without having to have their parent with them?
• How many withdrawals are allowed each month? Some savings accounts limit the number of monthly withdrawals, usually to six.
• Can I monitor account activity online? While you want your child to become financially independent, you also don't want them to spend all their money on candy or video games. Find out whether the account offers online or mobile banking access so you can keep tabs on their activity.
• Do you offer any rewards for reaching savings goals? A savings account is a great tool to use to help your child set and reach financial goals, such as saving for college or to buy something fun. Some accounts provide incentives or encouragement to help your child reach their savings goals.

Is a kids savings account a good idea?

If you want your child to develop money management skills from a young age, opening a savings account for them is a good idea. Thinking of it as paving the way to financial literacy for them, as the account introduces them to how banking and money management work.

A kids savings account can also help your child get excited about saving and managing their money responsibly. When they deposit some or all of their allowance or earnings from a part-time job, they can watch their account balance grow.

What should I look for in a child savings account?

A savings account can be a fun, hands-on way for your child to learn about saving and budgeting — but it also needs to be a smart financial decision on your part. Savings accounts aren't all created equal, so it's important to shop around before opening your child's account. Look for these key features:

• Waived monthly fees. Monthly maintenance fees can eat into your child's savings pretty quickly and may discourage them from using their account. Find out whether the bank will waive the monthly fee or offers accounts that don't charge a fee at all. In some cases, you may be able to avoid the extra cost by keeping a minimum balance in the account.
• Physical locations. Consider a bank with a nearby branch where you child can experience the process of depositing money in person and interacting with bank staff. These early experiences can help them build confidence with managing money while digital banking skills can be introduced later.
• Interest rate. Pick a bank account that pays interest because investment earnings is an important lesson to teach a child, and a savings account is a great way to introduce the concepts of annual percentage rates (APR), annual percentage yield (APY) and compounding interest.
• Perks and rewards. To help your child get excited about saving, look for a bank that offers rewards for things like reaching a savings goal, earning good grades or completing their summer reading list.

Can my child have an ATM or debit card with their savings account?

An ATM card or debit card can be used to access both checking and savings accounts at ATMs, but a debit card requires a checking account to make purchases. Depending on your child’s age, having their own debit card can be a great way to each smart saving and spending habits.

An ATM card requires a personal identification number (PIN) and allows your child to make deposits and withdrawals to their savings account at ATMs.

A debit card, on the other hand, functions like a credit card for purchases but requires funds to be available in the child’s checking account. If the account does not have sufficient funds, the transaction will be declined. While some banks offer ATM cards to younger children, most require kids to be at least 16 years old to issue a debit card.

What happens to a kids savings account when they reach age 18?

Once your child turns 18, you have a few options. You can continue to be joint owners of the account or you may decide to remove yourself from the account. Another option is to close the account and have your child open one on their own if they haven't already.

Start your child on the path toward saving

Whether your child is just entering elementary school or headed to high school, get them on the path toward good financial habits by opening a savings account for them. Whether they use the account to save for the latest toy or to get ready for their future, you'll feel confident knowing you're instilling good habits early.

Ready to open a savings account? Learn more about how you can save with Citizens today.