One of the greatest gifts we can give a child is to teach them financial responsibility at a young age. And savings accounts for children can go a long way in this effort. As my wife and I raise our two kids, now both teenagers, we can see just how important it is that kids understand basic money management skills.
The right type of online savings account for a child can help teach children several important financial lessons:
- The Power of Compound Interest: While perhaps urban legend, Einstein is said to have quipped, "The most powerful force in the universe is compound interest." Watching a savings account grow through compound interest can help teach a child the importance and benefits of saving and investing at an early age.
- Setting and Achieving Goals: Setting goals helps us think well beyond the moment. Financially speaking, consistent goal setting can help anybody achieve a greater level of financial freedom and wealth.
- The Importance of Saving: Instilling in our children the habit of saving money can help them avoid a lot of grief later in life. Teach a child this lesson early in life, and they are far more likely to maintain the habit of saving when they are older.
Best Savings Accounts for Children
So let's turn to some of the best savings accounts for kids. When we compiled this list, we considered several factors:
- Interest Rate: A high-interest savings account can help a child understand the importance of finding the best deals. While the interest rate isn’t the only consideration, it’s obviously an important one.
- Low Fees: With many bank accounts for kids, the amount of money saved will be relatively small, at least to start. The last thing you want is fees eating away at the balance.
- Low Minimum Balance: Some banks either require a substantial minimum balance or charge extra fees if a certain balance is not maintained. Unless your child's bank account will exceed these minimums, it's best to avoid these accounts.
- Fun: Yes, a bank account can be fun. And particularly for young children, the fun factor can go a long way in teaching kids about money.
With these criteria in mind, here are our top choices for the best child savings accounts:
Capital One 360 Savings Account
Capital One 360 used to have a savings account option just for kids. This isn't the case anymore, but their general 360 savings account is still a good fit for the little ones in your life.
This flexible bank account offers most of what we were looking for in a kids’ account: no initial deposit requirement, no annual minimum balance, and no fees. With an APY of 0.60%, the interest rate is pretty solid.
While these accounts don't have fun programming especially for kids, their standard savings goal feature could be great for young savers. With this program, kids can set a goal, track their progress, and celebrate when they reach that goal.
As a parent, you can also set some limits with this account. For instance, kids can check their balances online at any time, but only parents can make cash transfers and withdrawals. You can also set up an automatic savings plan from your own Capital One account if you want to give your child his or her allowance electronically.
We include CIBC US in our list for several reasons. First, it has no minimums and no monthly fees. Second, it offers a variable APY that is generally one of the best savings account rates you’ll find around.
All account balances are FDIC insured up to the $250,000 maximum per depositor.
Barclay's Dream Account
This account option lets you make deposits of up to $1,000 per month, making it a good option for most kids. You can earn an outstanding 1.15% APY at the time of this update. And you can easily transfer money to and from other banks
The Dream Account also gives bonuses for good savings habits. For instance, if your child makes deposits for six consecutive months, she’ll get a 2.5% bonus on the past six months’ worth of interest earned. And if you make no withdrawals for six consecutive months, your child will earn another 2.5% bonus on the past six months’ worth of earned interest.
Barclay's Dream Assistant tool can help kids choose a goal, figure out how much it costs, and determine how long it will take them to reach their goal.
This account doesn't have a minimum opening balance requirement. Unfortunately, it does have some fees associated. Be sure to check out the account fees prior to opening this account for your child.
Update: This offer is no longer available.
Online Banking Caveats
One potential problem with an online bank account like those listed above: there are no branches. If you plan to have your child save quarters and dollars in allowance money to deposit into the bank monthly, this could present an issue. Still, many parents have slick allowance tracking options that would allow you to deposit allowances or earned cash straight into the online account.
Local Banks and Credit Unions
Many local banks and credit unions have savings programs just for kids, too. In fact, some of these local places do a better job of custom-tailoring accounts for kids and including the fun factor.
For instance, Forum Credit Union, a midwestern credit union, offers an Aware Kids Account, which comes with a Moonjar at account opening. The Moonjar is a great way to teach kids the three major things they can do with their money: spend, save, and give.
Similarly, North Coast Credit Union offers a Youth Savings Account that comes with some fun perks, including a report card reward savings boost for kids.
You may find that local credit unions and banks don’t offer high savings a rate for youth accounts, though. Compare their rates to those of online banks, and then weigh other factors to determine which account would work best for your children.