Types of Savings Accounts for Kids
By Synchrony Staff
- PUBLISHED August 01
- 4 MINUTE READ
Can My Child Open His or Her Own Savings Account?
While some minors may be able to open a savings account at some banks, they typically cannot do so without a parent or legal guardian as joint account owner. Parents who want to transfer assets to or deposit money for their child in their child’s name only usually do so in the form of a custodial account.
What Is a Custodial Account?
A custodial account is a savings account that an adult controls for a minor. In most states, the funds are held until the minor turns 21, but the account can be closed and funds transferred to a child earlier.
There are two types of custodial accounts: Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts. These are essentially the same, except an UTMA can hold more types of property and has more flexible rules than the UGMA. The vast majority of states allow for UTMA accounts.
How Do I Set Up a Custodial Account?
To set up a custodial account, a custodian must be appointed for the minor and provide his or her name and social security number.
Any money in this account will belong to the minor, but is controlled by the custodian until the minor reaches the age of 21 (this age requirement may vary by state).
Advantages of a Custodial Account
There are many benefits to setting up this type of savings account for kids, including:
- A portion of the interest income may be tax-free
- No income limits
- No contribution limits
- No withdrawal penalties
With these benefits, it’s important to note that any deposit amount over $14,000 in a given year is subject to IRS gift tax rules.
What Do I Need to Open a Savings Account?
If you wish to open a savings account to start saving money for your child, here is some information that’s typically required:
- Your identification, in the form of a passport or driver’s license
- Your social security number
- Your personal details including your name, address and date of birth
- You will also need similar information for the minor (a birth certificate or social security card is often used in place of a driver’s license)
- An initial deposit, if required
Tips to Encourage Your Child to Save More
Once you open a savings account for your child, encourage him or her to learn about the saving process.
- Educate your child on saving. If your child receives money from a relative, chores or a part-time job, advise him or her to save it and explain how the deposit process works. This step gets your child acquainted with money management.
- Introduce your child to online banking. While your child won’t be able to manage their own account, you can teach them about different online banking tools. When it’s time to start managing money, they’ll have a good understanding of where to begin.
- Teach your child about important banking tools. Many banks offer different tools for tracking savings and expenses. Get your child acquainted with these financial tools and have them learn basic tasks, like how to write a check, before turning 18.
If you can get your kids excited about saving and good financial habits while they’re young, it will put them on the right path to a better financial future.