A Bank Account for Your Child
Author: Kirsten Weiss
One of my most vivid childhood memories is going to the bank with my father. He had opened an account in my name the day after I was born, and all my Christmas and birthday money flowed into it. After those holidays, he’d take me down to the bank to deposit the money, show me my passbook and how much money I’d accumulated, and talk to me about the interest I was earning.
I confess that my young-self would rather have spent the money; knowing I could not run out and buy the latest Barbie doll was a disappointment. My older-self, however, remembers those lessons of saving and compound interest.
We’ve left the days of passbooks far behind. Opening an account in-person or on-line can still be a terrific learning experience for a child, particularly with a high-yield savings account to really drive home the concept of compound interest. Look for accounts with low or no minimum deposits, and with low fees. (For a list of the best on-line accounts, check out Doughroller.net.)
There is, however, something to be said for taking your child to a brick and mortar bank to open an account. It’s interesting, especially for smaller children. Find out in advance about what types of accounts are geared towards children, and ask the bank rep to sell the benefits of the account directly to your child, to get your child involved in the process.
One question I often hear is whether the account should be set up in the name of the child or the parent? So I went down to my local community bank and asked Mona Soliman, Private Banker with Borel Bank and Trust in Burlingame, CA.
“The Uniform Act allows a parent to open an account as trustee for their child and the child can’t access the money until they’re 18,” Mona said. “The parent can access the money on behalf of the child. Then that account converts to the child’s name at 18, if the child elects to do so.”
This is the standard model of bank accounts for children, and it’s a good one. Not only does the child get to see his or her name on the account, which makes it more exciting, but the child’s social security number is used on the account, so there are “no taxes on the interest earned unless it’s a tremendous amount of money,” says Mona (as in all things, consult your tax advisor).
You must be able to prove you are a resident in order to open one of these accounts, and the child must have a social security number. Call the bank in advance before taking your child in to open the account to verify what you need, because in this fast-paced regulatory environment, rules can change.
Bank accounts may not always be the best ways to save for college, but they are great tools for teaching children how to save. “Most parents who come to our bank have their kids put some money from their allowance on the side,” Mona says, “and then they come in with the kids every two weeks, or every month, to put the money into the accounts. Birthday or special occasion money is likewise put into the accounts. Then, if the kid needs anything major (for example, sports equipment), they can use this money.” The parent needs to spend time with the child, discussing how much is being saved and why, and what sorts of uses the savings will go toward. Don’t just lecture; discuss the importance of what you’re saving for. And listen.
Most Americans are terrible savers, and it’s going to come back to haunt us. Teaching your children to save is an invaluable life skill and yes, when both parent and child are engaged, it can be fun!