These are the best bank accounts to get teens started saving.
Your child’s teenage years are a period of learning tough lessons about life, as well as money.
And if you’re a parent looking to make those lessons less painful, you can help them start saving now.
Here are some bank accounts for you to consider for any young saver looking to put their money to good use.
Custodial accounts (UGMA/UTMA accounts) are brokerage accounts used to save for a child’s future expenses, like going to college or buying a home.
The custodian, usually a parent, is in charge of managing the account and its assets.
- The account belongs to your teen. Money added to these accounts is designated to the minor, the beneficiary. But until the minor becomes an adult, only the custodian can handle the account’s assets.
- Once the minor turns 18, the money belongs to them, and they can use it any way they want.
- Funds can be withdrawn at any time—Prior to the child turning 18, funds can be withdrawn by the custodian only if they’re used for the child’s benefit.
- You still need to pay taxes—Income generated by the account is subject to taxes.*
- There are limits—The custodian can contribute up to $15,000 annually before gift taxes kick in.
Savings accounts accrue interest over time. With time, compounding can add up, but interest rates are usually too low to make much of a difference with standard savings accounts.
They’re different from custodial accounts, but generally, have some benefits for young savers.
- Lower annual fees—Many banks tend to charge an annual banking fee for opening a regular savings account. But some student savings accounts either lower the fee or waive it altogether.
- They pay some interest—Savings accounts typically have higher interest rates than checking accounts.
- No minimum balance—Many savings accounts don’t have minimum required balances.
Student checking accounts
A checking account is a good option for teens, too, as they can help them learn to budget and keep track of their spending.
- Low fees—Student checking accounts typically have low or no annual or monthly fees.
- Easy access—Checking accounts are liquid and easy to use, meaning teens can use them on a day-to-day basis.
- Low minimum balance requirements—Teens don’t usually have a lot of money. Checking accounts tend to have low minimum balance requirements (if any), which is good for kids with low balances.
Take off the training wheels
The best way to teach a teen about the importance of saving is to let them share control of their money. While custodial accounts let a custodian take the wheel, saving and checking accounts have a greater degree of freedom if a teen is ready to become financially responsible.
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*For all Tax related questions, please consult a tax professional.