Kid’s savings accounts: what you need to know

Teaching your children strong financial literacy skills while they’re young is a great way to prepare them to be financially intelligent adults. While our financial habits are usually well formed by the time the age of seven, kids as young as three years old have the ability to understand basic money concepts. If that’s the case, it’s never too early to start teaching kids about money.

Once your kids have outgrown their piggybank, it may be a good time to introduce them to the next level of financial tools: a savings account. Understanding the ins and outs of a kid’s savings account may spark a few questions for parents. So before you visit your local branch, take a look at the answers to some commonly asked questions about kid’s savings accounts.

Although your child isn’t legally able to open an account on their own yet, you can open a joint account so that both you and your child have access. This way, you'll both be able monitor the account, and you can show your child how to grow their savings to reach a goal. Because the parent or guardian is a joint owner of the account, there isn’t usually a minimum age requirement for a child to open an account; check with your bank to confirm.

In case you’re envisioning your teenager emptying the bank account and buying a new gaming system, rest assured that there are safeguards in place. For example, many banks won’t authorize a transaction if there isn’t enough money available in the account to cover it. In addition to state and federal banking laws, individual banks may have their own restrictions. Talk to your banker about the rules and protections that come with a kid’s savings account.

A few other questions you might want to ask are:

• Can my child make deposits and/or withdrawals without me?
• How many withdrawals are allowed each month?
• Can I monitor account activity online?
• Do you offer any rewards for reaching savings goals?

A savings account can be a fun, hands-on way for your child to learn about saving and budgeting — but it also needs to be a smart financial decision on your part. Savings accounts aren’t all created equal, so it’s important to shop around before opening an account. Look for these key features:

Waived monthly fees: You don’t want to pay maintenance fees for your own bank accounts, and you shouldn’t have to for your kids’ accounts, either. Many banks waive monthly fees and/or the minimum balance requirements for kid’s savings accounts, so be sure to ask that question early in the conversation with any banks you’re considering opening an account with.

Physical locations: Even if your kid set up their grandparents’ Wi-Fi last week, they can still benefit from learning in-person banking skills. The act of filling out a deposit slip and handing it over to a real live teller — along with their hard-earned money — can be a much more memorable and lasting experience for your child than having them give you the cash so you can make an online transfer to their account. Online banking is a necessary skill they’ll need to learn eventually, but if they’re just starting out, becoming comfortable depositing and withdrawing money at a brick-and-mortar bank can help increase their confidence in both their saving abilities and their interactions with adults.

Interest rate: Earning a return on an investment is an important lesson to teach a child, and a savings account is a great way to introduce the concepts of annual percentage rates (APR) and compounding interest. Starting out, they may not earn a monumental return, but for now it’s more about increasing their financial literacy than the return on their investment.

Perks and rewards: Adults and children alike benefit from a reward system. To help your child get excited about saving, look for a bank that offers rewards for things like reaching a savings goal, getting good grades, or completing their summer reading list.

Depending on your child’s age, having their own ATM or debit card can be a powerful way to drive home the importance of smart saving and spending habits. An ATM card requires use of a personal identification number (PIN) and allows your child to make deposits and withdrawals at — you guessed it — ATMs.

A debit card, on the other hand, can be used much the same as a credit card to make purchases anywhere Visa® and Mastercard® are accepted. However, a debit card differs from a credit card in that to make a purchase, you must have the money available in your account to cover the purchase amount; with a credit card, you’re essentially borrowing money that you agree to pay back at a later date.

Some banks will allow younger kids to have their own ATM card, but most banks require kids to be at least 16 before they’ll issue them a debit card. Also, not all banks issue debit cards to savings account holders. But either option will help kids learn the fundamentals of saving and budgeting — and be better prepared to manage a credit card once they turn 18.

Helping your children get ready to embark on their life-long financial journey is a gift. A Citizens savings account can provide your child with a safe place to set aside money.