What’s the Best Bank Account for Kids and Teens?
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One of the greatest resources any individual investor has is time. The more time you have, the longer you have for your investments to grow—and for something (almost magical!) called compounding to work.
Similarly, one of the best ways to secure the financial future of the kids in your life is to start teaching them about money early and continue doing it over time. One potentially great way to do that—and to start instilling good money habits while they’re young—is by opening a bank account for them.
There are three types of accounts to consider for kids and teens: savings accounts, checking accounts, and custodial accounts. It’s helpful to know the ins and outs of each of these before you go to the bank to open one up. And yes, you can open certain accounts online—but if possible, start by going to a physical bank with the kids or teens in your life to help them get a hands-on sense of how banking works. Keep in mind, too, that while many adults ask themselves which is the best bank account for kids or the best bank account for teens, it’s really going to depend on your individual circumstances and goals.
Want the kids in your life to get practice with savings, checking, and investment accounts before they try the real thing? Talk to their teachers about Stash101, a free simulated banking and investing platform for students that helps teachers manage their classrooms.
How old do kids have to be to open an account?
Children who are 18 or older can generally open their own bank accounts. If they’re under that age, you’ll have to open a joint account with them.
Being co-owner of a joint account doesn’t give you complete control over it. However, it can give you and the kids in your life significant advantages in savings, investing, and managing taxes. Check with an accountant or tax advisor for details specific to your situation.
Is there a best children’s savings account? Not exactly—just like there’s not an overall best bank account for kids or best bank account for teens. While it would be convenient to say that this or that account is the best one for everyone, the truth is that each person’s situation is different—so we recommend doing a little research to find out what works best for you and your particular situation. But as you’re deciding whether to open a savings account for the kids in your life—and which one to open if you do—here are some things to keep in mind:
- Many banks charge annual fees, but of course kids don’t want to see their money eaten up by a bank. You should shop around for accounts that don’t charge maintenance or minimum-balance fees.
- For your kid, having a debit card with their own name on it can build confidence. Consider getting a card, and teach the kids in your life how to keep it—and its associated personal identification number (PIN)—safe.
- Savings accounts accrue interest over time, so make sure the one you choose has the best possible interest rate in order to reap the highest rewards. If kids can see their money growing, they’ll likely be encouraged to save even more. And with time, compounding can add up, even though the interest rate on most savings accounts is fairly low.
- Many savings accounts don’t have a minimum required balance. Look for those that don’t, because every penny counts!
Student checking accounts
A checking account can be a good option when kids get a bit older, as it can help teens learn to budget and keep track of their spending.
Here’s what you can expect—and should look for—in the best checking accounts for teens:
- Look for an account with low or no annual or monthly fees. It’s worth it to shop around!
- Because checking accounts are liquid, teens can easily use them on a day-to-day basis. Keep this in mind when comparing checking, savings, and custodial accounts.
- Since teens don’t usually have a lot of money, it’s a good idea to find a checking account with a low or no minimum balance requirement (if any).
Can kids invest?
Yes! Kids and teens under 18 can invest in conjunction with an adult, while those over 18 can invest on their own.
Kids can get started with investing through a custodial account, which is an account that’s overseen by someone for the benefit of someone else. In this case, it would be an account overseen by a parent or guardian for the benefit of a minor. A custodial account can teach kids about investing and the stock market, along with the tax benefits and penalties that go along with these things. These types of accounts have their own advantages and pitfalls, and it’s best to know about them before you begin.
Custodial accounts (UGMA/UTMA accounts) are brokerage accounts that are often used to save for a child’s future expenses, like going to college or buying a home.The custodian, usually a parent or guardian, is in charge of managing the account and its assets. Here are some other key things to know:- The account officially belongs to the child. Money added to these accounts is designated for the minor, otherwise known as the beneficiary. But until the minor becomes an adult, only the custodian can handle the account’s assets.
- Depending on the state and account specifics, the child usually gets direct access to the money at age 18 or 21.
- Prior to that time, funds can be withdrawn by the custodian—but only to be used for the child’s benefit.
- Income generated by the account is subject to taxes.
Advantages of custodial accounts
- There’s no limit to how much a custodian can deposit into a custodial account (but see important notes below regarding gift taxes).
- Some custodial accounts allow donors to contribute not only cash, but also stocks, annuities, bonds, life insurance, and even paintings.
- While custodial accounts are often used to save for college, they can be used for other things. Once they’ve reached the designated age, the beneficiary can use the funds for anything, such as a car, house, travel, or even a graduation party.
Disadvantages of custodial accounts
- Even though custodial accounts aren’t necessarily college savings accounts, their value can be counted as part of a student’s assets when applying for financial aid.
- Custodial accounts can be taxed.
- As of 2021, the custodian can put up to $15,000 into the account annually without triggering the gift tax. (For married couples, the amount is $30,000.) The gift tax is a federal tax on any transfer of assets from one person to another that exceeds these amounts.
- The first $1,050 of income, or capital gains, from the account is not taxed annually. After that amount, it’s taxed at the child’s rate, generally between 10% and 15%.
- Any amount over $2,100 is then taxed at the custodian’s higher individual income tax rate, according to the most recent information from the IRS.
Keep in mind that when it comes to tax considerations, it’s always best to consult a professional tax advisor.
Why open an account with the kid or teen in your life?
When it comes to kids and learning, practical experience goes a long way. The physical act of depositing cash or checks, checking an account balance, or watching interest accumulate can help teach your kids about money and financial responsibility in an active, hands-on way. This applies whether you and the child or teen do these things at a bank, ATM, or on a digital device. And these activities will hopefully become habits that will keep your kids or teens actively investing and keeping a watchful eye on their money as they grow up.
How can I use savings, checking, and custodial accounts to teach financial literacy?
It’s nice to imagine the kids in your life going to college, buying a nice home, retiring early, or any of the other advantages that might stem in part from starting to save money at a relatively young age.
The money isn’t the most important gift, however.
Getting started young with savings, checking, and custodial accounts can help kids learn good financial habits. Whenever possible, go with the kids in your life to make deposits, or do it with them on their device. Check their account balances with them. Or if their money is invested through a custodial account, show them what they’re invested in, and help them keep track of what they have. And remember, good financial habits acquired in childhood can last well into adulthood.
Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. Investing involves risk and investments may lose value.
“Kids Portfolio” is a custodial UGMA / UTMA account. Money in a custodial account is the property of the minor. This type of account is a Non-Discretionary Managed account.
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