One of the greatest gifts we can give a child is to teach them financial responsibility at a young age. And a savings account 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 are 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 Kid’s Savings Account: Formerly ING Direct, this savings account is specifically designed to teach children the habit of saving. The account pays a very competitive interest rate and doesn’t charge any fees. Children can check their balances to watch their money grow.
Capital One 360 Money: This account is ideal for teenagers. Both of my children have Money Accounts, which act kind of like a checking account, but without checks. They get a free debit card and the balance earns interest. There are no monthly maintenance fees, and I can monitor their spending. It’s a great way for teens to avoid carrying cash and to see where they are spending their money. Many times we have to show our daughter just where all her money went, and it’s easy with this account. And when they are ready, they can convert the Money account into a checking account.
Ally Bank: Finally, we include Ally Bank in our list for several reasons. First, it has no minimums and no monthly fees. Seconds, it offers extremely competitive interest rates. And finally, it has a wide selection of savings products. In addition to a simple online savings account, Ally Bank offers a variety of certificates of deposit, including a raise your rate CD and a no-penalty CD. As a result, Ally Bank is a great choice for older children, and could certainly become their bank of choice when they move out of the house.
The above are online banking options for children. Of course, you can always choose a local bank, and many offer special programs for kids. The downside is that interest rates usually aren’t as high as they are with online banks. Whatever you choose, the key is to make savings fun and consistent. And depending on the age of your child, consider involving them in choosing the bank.