May 30, 2021

Is it Too Early to Open a Baby Savings Account

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Have a little one on the way? Learn when you can open a savings account for your child, the best accounts to use, and which fees to watch out for.

Is it too early to open a savings account for your baby?

The short answer is: Nope. (Even if you're still expecting - more on that later.)

In this article, review the key considerations for parents, including:

  • The different banking rules depending on your child's age
  • The best savings accounts for your baby, and how to open one
  • How to decide if it's the right move for you.

When Can You Open a Bank Account for a Baby?

There are strict rules and regulations for banks and other financial institutions. As a result, it's not always as easy as walking into a branch and saying you'd like to open an account.

Unborn babies and children under 18 are two such examples.

Let's go over the different rules that apply to each.

Banking Rules for Unborn Children
If you're still expecting, you technically can't open a bank account for the specific purpose of your baby-to-be. This is because unborn children can't yet own property as they do not legally exist until birth.

However, you can still open a savings account in your own name and then add your child to the account after they have been born.

Banking Rules for Children Under 18
Rules vary based on state laws and the rules of individual banks, but children under 18 usually can't own a savings account alone. However, you can open a joint bank account for your child and assign them as a co-owner.

When they turn 18, you can remove your name from the account.

If you're looking to give your child money earlier, you can also convert the account into a checking account, which children 13 and older can legally own.

What are the best financial gifts for a baby?
  • US Treasury Bonds are a great gift for young children; the current APY on the 20-year T Bill is a respectable 2.19%.
  • 529 Plans allow you to invest money in the stock market and spend it tax-free on higher education
  • Cash contributions into the child's savings account

What Type of Savings Accounts Should You Open for Your Baby?

There are three types of accounts you can set up for your child. What you choose depends on your unique situation and needs.


  1. Joint Savings Account: A joint account allows you to add your child as a co-owner. Deposits earn regular monthly interest. When your baby turns 18, you can decide if you want to remove yourself from the account to give sole ownership to your child.

  2. Custodial Savings Account: UTMA and UGMA accounts list you as the owner and your child as the beneficiary. The account transfers ownership to the child once they turn 18 (or 21 in some cases). These accounts can also hold different types of assets such as stocks, bonds, and real estate.

  3. Education Savings Account: 529 Plans carry a range of tax benefits for you and your child. These accounts place money into an investment portfolio of your choosing and offer the greatest potential to increase assets over time.

The Best Savings Accounts for Baby

1. Alliant Kids Savings Account
To open an Alliant Kids Savings Account, parents must be a member of the credit union and the account must be linked to the parent's Alliant checking account.

However, Alliant offers hands-down the best perks available, including higher interest and your minimum deposit waived.

Features:

  • 0.55% APY on balances over $100
  • $1 monthly fee (waived when you opt-in to e-statements)
  • $5 initial deposit bonus

2. Capital One Kids Savings Account
This is arguably the most accessible and simple option. Any adult over 18 (not only parents) can open a Capital One Kids Account for a minor.

Parents can create up to 25 unique accounts and customize names for savings motivation, such as "New Xbox" or "My First Car."

Features:

  • 0.30% APY
  • Automatic savings deposits
  • No monthly fee

3. Chase First Banking
Chase is the only option on our list with nationwide branch locations, which may be a consideration for you. The Chase First Banking account is a checking account and bears no interest.

However, there are no fees of any kind and Chase First Banking comes with some great financial education tools.

Features:

  • 0% APY
  • No minimum opening deposit
  • No monthly fee

What to Look for in a Kids Savings Account

Bank account features, APY, and fees can change at a moment's notice, so the list above will not be the best kids' savings accounts forever. Here's what to look for when you consider opening a savings account for your child.

  1. No monthly fees: If you want to keep an account open for a long time, avoiding monthly fees is a must. For example, a $5 monthly fee for 18 years would cause your child to lose out on $1,080 in savings!

  2. Interest bearing: Take advantage of the magic of compound interest by finding a savings account that has a high APY.

  3. Financial education: Many bank accounts for kids come along with educational features such as instructional videos, quizzes, and quick guides that can help teach financial literacy.

  4. Good grades awards: Some banks and credit unions, such as Primeway Federal Credit Union, offer financial awards for your child's good grades in K-12.

  5. Branch locations: When teaching your children about finances and money, it will come in handy to bring them into a branch location to see where their money is kept. Plus, bank employees are often willing to talk to kids about finances.

  6. Online access: For any bank in today's day and age, it's best to have online banking and mobile accessibility.

How to Open a Savings Account for Your Child

Different banks have different rules, but to be fully prepared, you should expect to follow this process:

  1. Provide legal documentation, including your driver's license or government-issued ID card, both of your Social Security numbers, and your child's birth certificate to verify their age.

  2. Next, you may have to bring a minimum opening deposit, which will be added to your child's savings account balance.

If you wish to open an account for your child before they are born, you will have to open a regular checking account and then add their name to the account after you have their birth certificate.

While you're planning for the future, it's worth taking a look at your emergency savings. Our emergency fund calculator is a great place to start.

Bottom Line: Is It a Good Idea to Open a Savings Account for a Baby?

Overwhelmingly, yes. Likely the only counterargument is that hardship develops character, and you may not want to make life "easy" on them.

This is understandable, but when it comes specifically to saving for your child's future, the facts don't bear this theory out.

For example, children who want to go to college and have a savings account are 700% more likely to attend than kids who don't have any money saved.

With the exception of the super-rich, you likely won't be able to save enough money for your child to make their lives a breeze.

However, saving enough to pay for a year or two of college or springboard their finances at the beginning of their professional career is a wonderful gift to give in this day and age of financial uncertainty.

Write to Justin Barnard at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Read Next:

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