You can always create a savings account with the funds earmarked for your baby, but opening the account in your newborn’s name provides not only a savings vehicle but a great gift and financial literacy tool as your child grows. The process is straightforward enough but requires some preparation, according to www.thebalance.com.
Setting up the account
Children under the age of 18 are not legally allowed to sign documents. As a result, you must open the account in both of your names. When the child becomes 18, you can go to the bank and remove your name permanently. While your child is still a minor, however, you will be the one who will have control of the account. You will have the ability to make withdrawals or deposits and close it if necessary.
Most banks will not have a problem with including the child’s name if a parent will also be listed on the account. However, the institution will want some confirmation of legal responsibility for the child.
You should plan on showing your baby’s birth certificate, and you will also need to show your own driving licence or some other official proof of identity. In addition, you will need both of your social security numbers to open the account.
Fees
Savings accounts often carry fees, but ways to get around them exist. Start by talking to the bank you currently use. They may let you link this new account to your other accounts, allowing you to avoid fees or minimum-balance requirements.
Otherwise, seek out a financial institution with low or no fees. Some banks waive charges provided a certain number of deposits are made to the account each month.
Another option is to choose an account that offers no service charges if there is a minimum balance and to make that sum to your initial deposit. You might reap some tax benefits by officially gifting the sum to your baby.
Bear in mind that funds deposited in these custodial accounts are irrevocable gifts and can be withdrawn only under certain more restrictive circumstances.
Location
Online banking is great for adults, but you will eventually want to take your child to visit the bank where the money is. Choosing a bank that is close to home will allow your growing child to make regular deposits and start to appreciate the value of saving.
Investment ideas
The interest on many savings accounts is low. Talk to your bank about options that might provide you with more favourable interest rates or tax advantages. You can also move the funds into a more attractive fixed deposit or investment account as the amount grows, allowing your child to earn more interest on the savings.
Choosing the best location for a kid’s savings account
Is the bank convenient for you to get to? If your children embrace the idea of their own savings accounts, they may want to make frequent trips to the bank. Consider a neighbourhood bank, one on a common route that you travel, or inside your local supermarket to keep the trips from turning into a hassle. If you frequently go to the bank, it may be very helpful to open your child’s savings account at the same bank to coordinate visits.
Fees and requirements
Find an account that does not have monthly maintenance fees or minimum balance requirements. Also, make sure there is no limit on the number of small deposits. Also, watch out for banks that charge fees for inactive accounts and read all the small print before opening the account. If you are using a bank that provides a free savings account tied to your account, find out what happens if you move your account to another bank.
Type of bank for a child’s savings account
The first bank you check will likely be your own bank. If they don’t have an account that meets the needs of your child based on fees and requirements, check out your local bank. In addition, you can explore an online bank if you feel you don’t need to make the physical trips to the bank to teach your children.
Ages of children to start a savings account
Based on the age of your child, your account needs will have different requirements. For savings account for a baby, you may only deposit gifts of money. For an older child, they may want to put money in and take it out to buy a toy. For a savings account for a teenager, they may want the ability to link it to a current account. Consider how you will use the account when selecting the type of bank and account requirements.
Services for children
Ask about services offered for children at the bank you are considering. Some banks give piggy banks to children to start collecting their monies and provide free counters in the lobby. Other banks allow children to go behind the counter and see the safe. The extra services are very valuable teaching tools.
Interest rates
Don’t forget to look at the interest rates on the account. It will be much easier to explain the power of compounding if the account is earning interest. Also, two banks may have very different interest rate structures.
