TL:DR
As parents, we're constantly on the lookout for ways to prepare our kids for the future. Whether it’s teaching them how to tie their shoes, ride a bike, or develop their own distinct (and sometimes questionable) fashion sense, we’re always guiding them toward independence. But there’s one life lesson that often gets overlooked until much later — and that's teaching them the value of money.
You’ve probably heard it before, but it’s true: opening a savings account for your child is one of the simplest yet most effective ways to kickstart their financial education. In fact, when done right, you’re not just saving for their future, you’re teaching them valuable lessons about budgeting, saving, and eventually investing. So, let’s dive into why savings accounts matter, the best types available for kids, and how they can pave the way for financial literacy in your household.
Why a Savings Account Matters for Your Kid
In an age where tapping a screen can buy you groceries, clothes, or that new gadget you’ve been eyeing, it’s easy for money to feel abstract to our kids. A savings account can ground that concept, showing them that money is a finite resource that grows with patience, effort, and smart decisions.
Here’s why it’s so important to start early:
Financial responsibility: It’s one thing to hear “money doesn’t grow on trees” and quite another to see that your allowance actually grows in your savings account.
Goal setting: A savings account allows your child to set small financial goals — maybe for a new toy or a cool gadget. It teaches them delayed gratification, one of the hardest but most crucial lessons in life!
Early habit-building: Opening a savings account early builds habits that will help your child manage larger sums of money as they grow older, whether it’s for college, a car, or their own home someday.
What’s a HYSA (High Yield Savings Account)?
Let’s talk HYSA, or High Yield Savings Account. Think of it as the savings account with a little extra oomph. While traditional savings accounts might offer a measly interest rate (we’re talking barely enough to buy a gumball in a year), a HYSA gives you more bang for your buck by offering a much higher interest rate.
Basically, with a HYSA, your money works harder. That $100 you put in for your child will grow faster in a HYSA than it would in a standard savings account. HYSAs are often offered by online banks, which helps them provide higher interest rates since they don’t have the overhead costs of physical branches. It's like finding the secret level in a video game that gives you bonus points!
Types of Savings Accounts Available for Minors
If you’re sold on the idea of starting your child’s savings journey, let’s break down a few of the options you have when it comes to accounts specifically designed for kids.
Custodial Savings AccountsThese are the bread and butter of savings accounts for kids. Custodial accounts allow you to control the funds until your child reaches a certain age, usually 18 or 21, depending on your state. Think of it as a “training wheels” account — your child can contribute money, but you manage the big decisions until they’re old enough to take the reins.
Best for: Parents who want to maintain control but also involve their child in the saving process.
Youth Savings Accounts: Many banks offer savings accounts specifically designed for minors, where kids can deposit and even withdraw money with parental supervision. These often come with fun perks and educational resources to help teach kids about saving.
Best for: Kids who are a little older and ready to start learning hands-on.
High-Yield Savings Accounts (HYSA): As mentioned earlier, HYSAs are a great option if you’re looking to maximize the amount of interest your child earns. Keep in mind that HYSAs are typically online accounts, which means no brick-and-mortar branch to visit. But hey, who needs a trip to the bank when you can check balances on your phone, right?
Best for: Parents who want to earn higher interest over time without frequent withdrawals.
529 College Savings Plan: Although not a traditional savings account, 529 plans are a tax-advantaged savings vehicle designed for future education expenses. It’s a great option if you want to set your child up for future college costs — think of it as long-term planning.
Best for: Parents focused on saving specifically for education expenses.
The Best Savings Account for Your Kids
With so many banks and financial institutions out there, finding the right one can be overwhelming. Here are a few solid options to consider:
Ally Bank – Known for its competitive HYSAs, Ally also offers a Custodial Savings Account with no minimum balance and no monthly fees.
Capital One – Their Kids Savings Account offers a solid interest rate, and the mobile app makes it easy to teach kids about saving in a fun, interactive way.
Alliant Credit Union – Alliant offers a high-interest kids savings account with a free ATM card, so your child can easily access their funds (under your watchful eye, of course).
Bank of America – Their Minor Savings Account is a simple option with no monthly fees, and it helps older kids transition into adult accounts when the time is right.
Savings Account vs. Investment Account: What’s the Difference?
Now, you might be wondering, “Should I open a savings account or jump straight to investing?” Great question! Both options have their perks, but they serve different purposes.
Savings Account: This is where you stash cash for short-term goals or an emergency fund. We believe its always good to have a savings account when you need to access cash without selling any investments or assets. It’s low risk, meaning your child’s money will grow at a slow, steady pace with no danger of losing it.
Investment Account: If you want to teach your child about long-term growth and risk, an investment account (such as a custodial brokerage or custodial Roth IRA) might be the way to go. Here, the money is invested in stocks, bonds, or mutual funds, meaning the potential for growth is higher — but so is the risk.
A savings account is like planting a tree and watering it regularly. An investment account is more like planting a field of crops — some years you’ll have a bumper harvest, while other years might be leaner. Both are important tools in your child’s financial journey.
Teaching Kids Financial Literacy: Why It’s Just as Important as Saving
A savings account is a great start, but if we really want to raise financially savvy kids, we need to take it a step further. Teaching them about why saving and investing is important lays the foundation for a lifetime of smart financial choices.
Here are a few ways to make financial literacy fun and engaging for your kids:
Set savings goals: Whether it’s a new toy, video game, or a future car, have your child or teen set a savings goal and track their progress. But no worries! If you need a little help in this area, you can enroll your child in our financial literacy app and help them start setting and practicing their savings goals! Give it a try for free here.
Use apps and games: Leverage technology to learn about saving and investing. Naturally, our personal favorite game and app for kids is the KidVestors' financial literacy app to get your child excited about their savings journey.
Involve them in family finances: Let your kids in on small financial decisions, like budgeting for groceries or saving for a family vacation. The more they see you managing money, the more they’ll understand its value.
Bottom Line... It’s Never Too Early to Start!
Opening a savings account for your child is like giving them a treasure map — it shows them where to start, but they’ll need to make smart decisions along the way to find the treasure. By pairing a good savings account with lessons in financial literacy, you’re setting your child up for success in life’s biggest game: managing their money.
So, what are you waiting for? Choose the right account, start the conversation about money, and watch as your child’s financial knowledge grows — along with their savings!
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