Savings Accounts for Children

provenceDecember 27, 2006

My children have had savings accounts at a well known bank for several years. They don't have to pay any fees, but the interest rate is awful - about a quarter of a percent. Hardly an incentive to save. I could open an online savings account for them, but they would then need a linked checking account (can under 18's have a checking account?), which would then probably have a monthly service fee, which would quickly erode their savings.

Can anyone recommend a no-fees, high-interest, savings account for children?

Thank you!


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Do they have enough money to put into a CD?

Check with any local credit unions also if your bank's requirements are too high for the kids. My credit union has a minimum CD amount of only $500.

It's wonderful that you are teaching your children to save. This is a great gift to them.

    Bookmark   December 27, 2006 at 5:08PM
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Have you checked around with other banks? You should definitely be able to get better than .5% I bank at a savings and loan--they're paying 1.5% on savings accounts with $1-$9999; and 3.5% on accounts with over $10,000. CD's are paying up to 5.25%, depending upon how long you take them out for. And S & L's offer pretty much the same services--savings, free checking, certificates of deposit, loans, free coin counting, etc--and since I bank at a small, long-established bank, they have much better customer service than the big banks do. Mutual banks also often have better rates than commercial ones.

I think a child can have a checking account (at least they used to be able to), but who knows with all the recent changes in stuff like that.

Of course, you do want to have your child's money in a secure, insured account. One that's not dependent upon the whims of the stock market--you'd never be able to forgive yourself if they lost money because of a poor decision you made. But I truly do think you can shop around your area for a bank that pays better than you're getting. I know when we inherited money from a relative when we were kids, my dad searched every bank for miles around, and put our (very small) inheritances in accounts at the bank that was paying the most.

    Bookmark   December 27, 2006 at 5:58PM
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How about buying them some Coke shares?

Or Johnson & Johnson (whose dividnd has increased just about annually for many years).

General Foods.



That way they also learn of the fluctuating value of assets.

ole joyful

    Bookmark   December 28, 2006 at 6:03PM
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My child (now 20) has always had that same type of savings account, but my name is also on it. We use it as a "collection point".

When he had accrued between $200 - $500, we would move it into a mutual fund. Part of his allowance in middle and high school was automatically invested into the mutual fund also.

All of thes accounts had to be joint accounts with me as "trustee for benefit of son", as did the checking account he opened at 17 y-o.

We still keep my name on the accounts now that he is in college, since it's convienient for both of us. He has no car with him, and sometimes can't get to the bank to move money from his savings to his checking, but I can do it for him. I can also pay his cellphone bill, which comes to this address. He works the occasional short-lived but lucrative job at a local theater, and can deposit that money into savings, and then I can move it to the mutual fund for him.

CD's are also a good option when the kids are young, but I must say, my son learned quite a lot by watching the mutual fund statements. He helped make decisions about when to move money from savings to the fund, learning quite quickly that buying when it was down a bit was a better long-term value than buying when it was high.

Any fund will have some risk, and there were years it didn't do all that well, but the steady accrual of shares certainly paid off in the end!

    Bookmark   December 29, 2006 at 9:06AM
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When my daughter was younger, I spent her Christmas money from my parents on 100 share of Wal-Mart. Since then it has split 2ice and she now has 400 shares. The dividends aren't great, but the potential for growth is!

    Bookmark   December 30, 2006 at 5:11PM
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I am so glad this topic was brought up.

How are these accounts looked upon when said child is ready for college in terms of financial aid? Is it looked at as income?

I am not at the stage yet but want to plan! I remember someone saying that when your child is ready for college you should take out a home equity line of credit on your home (don't use it) but it will appear as debt. Again, my child is young now but I would love some light shed on the topic!

    Bookmark   January 2, 2007 at 2:24PM
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My Gram set up accounts for both of our children when they were born. They put money in the accounts for birthdays and Christmas and other special times through out the year. Other family members can add to it if they just have the account numbers. Once the accounts get to be more than $1000, they put that money into a CD.

DS is 7 and has one CD and Gram is about to take another out and put in a second one. DD is 3 and she finally has $1000 to start hers! They're collecting far more interest on the CD's than the bank accounts but at least they were started and we've made progress.

    Bookmark   January 2, 2007 at 5:23PM
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The numbers of dollars invested in either the savings accounts or the CDs stays constant - they're "guaranteed", remember?

And the value of each of those "guaranteed" dollars has shrunk, every year (since the depression of the Dirty Thirties).

But the value of the asset that Vannie bought for her kids grew - sort of like they did.

Dollars in savings/chequing acconts (or CDs or GICs) are sort of like old farts like me - they shrink. Every year.

Learning how money works - an interesting hobby. **That pays well**.

Have a great New Year, folks.

ole joyful

    Bookmark   January 3, 2007 at 1:45PM
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In 2002 we started two 529 plans with $3000 each for my neices. Through careful investing in The Street, both accounts are now worth six figures. You still want a CD? Check ut a 529 college plan for your kid, really.

    Bookmark   January 4, 2007 at 7:24PM
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It depends on how much money will go into the children'
When we inventory the assets for a trust or probate estate I am surprised at how many people have used savings bonds. They paid $25 and some of them are worth $82 today. I realize thats an asset you could criticize but its seems like a way that people have saved small amounts.
For medium amounts --finding the best paying savings account and then moving to a CD makes sense.
Mary and Vannie's idea of buying stock in some major companies is wonderful, we did that with my son and he got to the point where he could read the Wall Street Journal. then he went to work for a major stockbrokerage when he finished college. Why didn't I let him read the AMA journal?

    Bookmark   January 7, 2007 at 6:52PM
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Thanks for all your responses. I would like to introduce my kids to investing in the stock market at some point, but for now I need a safe place for their hard-earned savings! I've discovered that ING offers online accounts for children, which they can access through my account. 4.5% interest, no minimums and no fees! The children can even check online whenever they like and see how much interest they're accruing.


    Bookmark   January 28, 2007 at 4:02PM
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Hi again Provence,

When I was young - almost 78 years ago (I have a birthday tomorrow) life was a lot more stable and there wasn't the speed of change that there is, these days. People worked for one employer throughout their working life, for heaven's sakes!!

About the only thing constant in modern life - is change.

There are many fluctuations in life, also - some ups and some downs, with some hum-drum stuff in between.

Which is precisely how the stock market works.

It might be a wise thing for your offsrping to put some of their asset into a long-term system - for use either when they need expensive education, or looking to retirement (ha-ha! as far as a kid is concerned).

If you want to choose some (I'd suggest equity-based) mutual funds for diversification, fine - but don't forget that the manager slips about a fifth of the average increased value into his pocket. If s/he's smart enough to equal the average growth of the market as a whole - which few are. And they get their annual percentage, even if they devekop no growth at all.

My suggestion would be a high quality, dividend-paying stock (for their value tends to deteriorate less than average, in a down market).

As an earlier poster said, they are very pleased with some of the results that good quality stocks have produced for their kids, over a number of years. Further - if your kid wants to buy a car, if the only available collateral is the car ...

... guess what the rate of interest will be (even if s/he can qualify)?

But if s/he has a few thousand dollars worth of stock which s/he can use as collateral for a line of credit at the bank/credit union ... the rate of interest will be a very large percentage lower.

A good lesson for a kid to learn.

Credit cards are a PITA.

Payday loans are a PITA.

Being without a nest-egg, giving one some financial maneuvering room, is a PITA.

And a neighbour's relative is about to get a severance package from work due to termination (auto manufacturing).

He's in mid-50s - and has a second mortgage ... at something like 18%.

He should have had a good financial advisor talking into his ear, years ago - (and been willing to listen, of course).

Learning how money works - a great hobby - that pays well.

And it's important for kids to learn how to boss their money - for if they don't boss it ... it'll boss them!

Have a great week.

Whe one's retired - every day is holiday.

a guy in Canada writes in our best personal money management magazine (that carries no slick ads) how he retired at ... (wait for it) ...

... age 34.

It took some financial smarts to manage that.

Now he - a young guy, right? - does what he likes.

Imagine - not being in the employment handcuffs any more.

Like I said - I hope for a great week for you and yours.

ole joyful

    Bookmark   January 29, 2007 at 8:55PM
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bushleague-- sorry, but there is no way you can turn $3000 into a six figure account in only 5 years in a 529 plan.... better check you actual values if you seriously think they are worth that much.

    Bookmark   January 30, 2007 at 9:07AM
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My kids have a long-term savings account with Thrivent, the financial organization that serves our church. The plan is to put their money in the local savings account, and then, when it gets over $300, to have them draw it out and move it to Thrivent.

of course, I have to get all the forms, etc., so it's more automatic; logistically I'm a bit behind there.

    Bookmark   January 30, 2007 at 9:35AM
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Someone asked about kids account and college financial aid. Here is the scoop.

Copy and paste.

    Bookmark   January 31, 2007 at 11:29PM
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When investing in your children's name, you need to remember that all investment income in excess of $1700 a year for a child under the age of 18 is taxed at the parent's rate for that type of income.

This is a tax law change for 2006.

So investments in your child's name may or may not save you tax dollars but can also negatively impact the amount of financial aid available when they go to college.

    Bookmark   February 1, 2007 at 7:11AM
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