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Money Management

02/10/2022

How Do I Open a Savings Account For a Child or Grandchild?

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Children think about a lot of things. Any conversation you have with your child or grandchild could lead to topics ranging from their favorite cartoon to why the sky is blue. A topic you probably won’t come across with them is how much they plan to put away for retirement. We understand why they aren’t worried about something like that, and as parents ourselves, we wouldn’t want them to - we want them to enjoy being a kid. At the same time, you want the best for them, and you probably spend time thinking about what’s ahead.

A strong financial foundation can start as early as childhood. As a parent, you can give that to your child by
opening a savings account for kids. A savings account gives you control over the money while they’re young and shows your child how it grows over time. It can also relieve some of the worry you might have, knowing there’s money set aside as they go off to college or start their career.

So how do you open a savings account for your child and what do you need? We’ll help answer that question and show you why getting started now can give your child or grandchild a head start down the road.

How To Open a Savings Account For a Child

Finding the right account.
A lot of banks and financial institutions offer savings accounts for minors. In fact, it’s possible that your current bank offers one. When you’re looking, there are a few things to keep in mind.

Overall, what you’re looking for is called a custodial account. Custodial accounts are accounts opened on behalf of a minor by someone over the age of 18. Most of the time this is done by a parent or grandparent.

The age of your child could impact which account you choose. If they are younger, a simple savings account should work great. If they are older, you might consider opening a checking account and a savings account. This will help them learn things like how to be responsible with a debit card. You will definitely want to look for an account that has online banking and a mobile banking app. This allows you to keep better tabs on your child’s bank account, and give your child a chance to see the balance go up over time. It is also smart to look into interest rates since they decide how much the account earns. Comparing savings rates could make a big difference down the road.

At Southern Bank we have two savings accounts for kids that you can choose from - our Youth Savings and First Spending with First Savings.

At Southern Bank we have two savings accounts for kids that you can choose from - our Youth Savings and
First Spending with First Savings.

Youth Savings is a savings account. It allows you to start saving early and when your child turns 18 it converts to our Southern Savings account for them to continue using.

First Spending with First Savings is a checking (spending) account AND a savings account. It teaches your kid or teen banking basics with built in safety features and daily limits. This account also helps them save by rounding up every transaction to the nearest dollar and putting the change into their savings account.

What information do I need to open an account for my child? You’ll need certain information for both yourself and the child to open the account:

For the child:

  1. Name
  2. Date of Birth
  3. Social Security number (some banks may require the card to be present.)

For the child:

  1. Name
  2. Date of Birth
  3. Address
  4. Social Security number (some banks may require the card to be present.)
  5. Driver's License

Open a Youth Savings account for your child right here.

What if I’m a Grandparent?

The good news is that the process and documents don’t really change if you are a grandparent. There are some banks that require the custodian on the account to be a legal guardian. Typically that happens when there is a debit card attached to the account and there is the possibility of overdrawing. For the most part, grandparents are able to open a savings account for their grandchildren much the same way a parent can.

The Benefits of Saving Early

Starting a savings account for kids comes with a number of benefits:

  • They learn how to create goals and stick to them
  • It teaches them about priorities
  • It shows them how money can grow over time
  • It enhances their basic math skills
  • They learn how to do things like deposit a check

That list goes on and on, but in general, opening a savings account for your child gives them a head start on saving and teaches them a ton about money. What kind of difference can that make in their life? Here’s how.

The Value of Time

If your kids are still young, they have one asset that us adults seem to have a lot less of - time. Time can make a huge difference when it comes to saving. We’ll use two examples to show you how.

Family A has a 5 year old child and $10,000 saved up. They decide to put it into a savings account for when the child turns 18. To help it grow, they decide to add $10 a month for the next 13 years. At an interest rate of .5% APY3 over 13 years, they’d end up with $12,283 to give.

This savings account graph from Southern Bank shows how $10,000 can grow to $12,283 over 13 years if a family starts with $10,000, adds $10 each month, and accrues interest at a rate of .5% APY.<sup>3</sup>

Family B also has a 5 year old child but doesn’t have any money saved up. They decide to open a savings account with $75 for when the child turns 18. To help it grow, they decide to stretch themselves further and keep adding $75 a month for the next 13 years. At the same interest rate over the same timeframe, they’d end up with $12,171 - Almost the same amount!

This savings account graph from Southern Bank shows how a family can start a savings account for their child with $0 and grow the account to $12,171 over 13 years by making a $75 contribution each month with an interest rate of .5%.

Even though Family B started with far less than Family A - almost $10,000 less - the choice to stretch themselves each month landed them in the same spot.

That is the value of time.

Now you may not have $75 a month to put away, but even smaller amounts can give your kids a great start on savings.

$10 a month for 10 years = $1,241
$20 a month for 10 years = $2,482
$30 a month for 10 years = $3,723
*All examples calculated using .5% APY3 interest rate

Getting started early and doing what you can makes a big impact down the road.

The Value of Learning

While we tend to get caught up on the dollar amount of savings, there may be more value in simply having an account.

A study from the University of Kansas¹ showed that kids who had savings accounts in their name starting at age 17 through the age of 23 did significantly better down the road and eventually accumulated more savings and assets than their peers. Another study from Washington University² found that children who had savings accounts were 6 times more likely to attend college.

The choice to get your child involved in saving doesn’t just give them more funds when they’re older, it teaches them about money management and sets them up for success. That’s something they’ll carry with them for years to come.

Open a Checking and Savings account for your child - First Spending with First Savings.

Disclosures:

1 Krings, Mike, Savings Accounts For Children Linked with Later Financial Success, The University of Kansas, Sept. 16, 2013, https://news.ku.edu/2013/09/16/savings-accounts-children-linked-later-financial-success

2 Martin, Jessica, Kids with Savings Accounts in Their Name Six Times More Likely to Attend College, Washington University in St. Louis, April 25, 2011, https://source.wustl.edu/2011/04/kids-with-savings-accounts-in-their-name-six-times-more-likely-to-attend-college/

3Annual Percentage Yield Disclaimer – The information provided is intended for illustrative purposes only. Nothing in this article should be constructed as financial or legal advice.