Are you trying to teach your child the value of a dollar — and the importance of saving up for special items — by stashing away some of his or her birthday, holiday, and gift money?
If so, it might make sense to open a savings account for that extra money. With a bank account, your child can start socking away money they receive from relatives, cash they earn by completing chores, and dollars you contribute on their behalf — and watch it add up.
And unlike your child’s piggy bank, a savings account may also offer interest that helps their little nest egg grow. So, what are you waiting for? The following guide can help you figure out when the time is right.
When Should I Open a Savings Account for My Child?
There is no right or wrong time to open a savings account on your child’s behalf. On the other hand, when your child starts to accumulate small sums of money, you’ll know the time is right.
For some families, that might mean opening an account when their child is an infant, and stashing away all of their gift money or making regular monthly contributions. For others, it might mean waiting until their child is in school, and perhaps starts earning small amounts of money on their own.
What Type of Bank Account Should I Choose?
Unless your child is a young entrepreneur who’s actually writing checks to pay bills and expenses, you’ll want to start off with a savings account, which will typically offer higher interest rates and fewer fees. The best savings accounts for kids (and adults) meet the following criteria:
- No minimum balance requirement. Since your child won’t have a lot of money saved at first, it’s important to choose a savings vehicle with no minimum balance requirement. That way, you can save small sums of money without worrying about falling short.
- No monthly maintenance fees. Monthly maintenance fees can eat away at a small savings balance in a short amount of time. To preserve your child’s net worth as much as possible, choose a savings account with no monthly maintenance or account fees.
- Online account management. While you may want to use a bank with a local branch to better illustrate the concept of a bank, it’s also important to have online access. With online account management tools, it’s much easier to keep track of your child’s growing nest egg for them until they are able to do it on their own.
- A high interest rate. Since your child’s savings account will likely be in place until they reach adulthood, it’s important to choose an interest-bearing account. For some of the best options out there, read this related post: How to Find the Best Savings Account in 2015.
How to Open a Savings Account for Your Child
If you opt for a bank with a local branch, opening a new account is easy as pie. Bring the following documentation:
- Your child’s Social Security number and date of birth
- Picture identification such as your driver’s license
- Personal details such as your address, email address, and date of birth
- Your initial deposit, including cash or checks
Since your child won’t be able to open the account without a parent or guardian present, show up ready to help. Also be prepared to sign the required legal documents on your child’s behalf.
How to Use a Bank Account to Teach Your Kids about Money
Once you’ve opened an account in your child’s name, you’ll find plenty of new opportunities to teach your child about money.
First and foremost, make sure they understand that the bank is simply holding the money for them, and that it is earning interest and growing. Here are some other ways to use a savings account for simple, child-appropriate money lessons:
- Register deposits and watch the money grow. Each time you or your child make a deposit into their account is an opportunity to show them how their savings add up. Take time to add the deposit manually in their paper register, and have your child do the math if they are able. Over time, they will see how the little deposits you make together add up.
- Sign into online account management to keep track of interest payments. In addition to deposits, you should also keep track of interest payments. This helps your child realize the value of interest on their savings, and how the magic of compound interest works. If you have online account access, log in to see how much money your child’s account is earning each month. Then, add it in your child’s check register along with any deposits.
- Make it fun. If your bank offers suckers and stickers to its pint-sized visitors, make sure to take advantage. You want your child to see bank visits as a fun and rewarding experience, and making the process enjoyable is one way to reach that goal. With any luck, your child will start to look forward to their bank visits in no time.
The Bottom Line
It makes sense to open a bank account for your child as soon as you’re ready. With plenty of years ahead of them, and compound interest on their side, you could help your child’s small savings grow into something they can benefit from over time. But to make the most out of these early years, the best time to get started is probably now.
When did you open a savings account for your child? How did you know the time was right?
The post Tips for Opening a Bank Account for Your Kids appeared first on The Simple Dollar.
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