Children’s savings account guide for parents

Children’s savings account guide for parents

Children’s savings accounts are a great way to teach your child smart money habits and help them save for future goals. College, for example, a car, or even a first home. As they watch their money grow, thanks to the power of compound interest, it’ll encourage them to keep saving. And help pave the way toward a financially healthy future too. 

What are children's savings accounts?

Children’s savings accounts are bank or credit union accounts designed for customers under the age of 21. (Some are capped at 12 or 18.)  Unlike regular savings accounts, they often come with extra perks. Here are a few of the bells and whistles you can expect:

  • No opening balance requirements (or low ones)

  • No monthly account fees

  • Online learning tools to help boost your child’s financial literacy

  • Mobile apps so kids can view their accounts easily

  • Parental controls so you can help your child manage their account

  • Higher interest rates than regular savings accounts to incentivize kids.


Youth savings accounts usually require joint ownership with an adult. A parent, grandparent, or legal guardian, for example. If you open one on your child’s behalf, as the adult account holder you’ll have full access and authority over the account. Your child usually has limited access until they reach a certain age. (Usually 18 or 21.)




How do children's savings accounts work?

Children’s savings accounts work like regular savings accounts. There are just a few key differences, to accommodate young savers’ needs. 


As the joint account holder, you deposit money into the account on your child’s behalf. To make life easier, many children’s savings accounts offer automatic transfers so you can transfer a certain amount of money to your child’s account on a regular basis.


Some kids’ savings accounts come with ATM cards your child can use to withdraw cash from the age of 13. However, others may only allow them to check their balance, not withdraw money without the joint account holder present. 


When your child turns 18 (or 21, depending on your state’s laws) the account may convert to a regular savings account. And your child may be able to take over full control of it. 


What are the alternatives to traditional kids' savings accounts?

A prepaid kids debit card like GoHenry is an alternative to a traditional kids’ savings account. While not technically a bank account, it works the same way. and it’s FDIC-insured too. 


Available for ages 6 to 18, a GoHenry prepaid debit card gives your kids all the benefits of a bank account without the hassle. It’s a safer way for them to learn about managing money while giving them a taste of financial independence. Parents can set spending limits and savings goals. Plus, you’ll get notified every time your child makes a purchase. 


Through Money Missions, GoHenry’s fun, in-app learning tool, kids can learn how to budget their money, save and invest. And get badges every time they conquer a new skill. 


Why is saving important for kids?

Saving is a learned skill that doesn’t always come easy. According to Bankrate data from 2022, many adults have no savings at all. And 56% wouldn’t have enough in savings to cover an unexpected $1,000 bill. 

Teaching kids how to save enables strong financial decision-making skills and means they’re less likely to fall into debt as adults. What’s more, starting to save young impacts your overall wealth as an adult. And as money habits are set by the age of seven, the sooner your kids start developing a savings habit, the better.


“By teaching your kids how to budget for savings, needs and wants from an early age, you’re setting them up for good financial behaviors later in life’ says Beth Zemble, GoHenry’s VP of Education. 


What are the different types of children’s savings accounts?

There are several different types of savings accounts for kids. Which one is right for you and your child, depends on your savings goals and how much you want your child to be able to engage in the process. 

Regular savings accounts 

You can open a regular savings account at most banks. Interest rates tend to be extremely low but they are a risk-free way to save with easy access to your money.

529 College Savings Plans 

529 plans are tax-advantaged investment plans specifically designed to save for your kids’ college education. They’re a better option than a children’s savings account for long-term, more aggressive investments. You may also get a deduction on your state income taxes. Funds in a 529, however, must be used for education expenses or you’ll pay a penalty. 

Custodial accounts 

Also known as UTMA/UGMA accounts, custodial accounts are investment accounts you can open for minors. But they have to be managed by an adult until the child turns 18 or 21 (depending on your state’s laws). Unlike 529 plans, your child won’t have to use the money solely for education purposes, but you may be required to pay taxes on UGMA/UTMA accounts 

High-yield savings accounts 

A high-yield savings account is just like regular savings accounts but typically offers higher interest rates. Over time, you’ll earn more on your savings. However, they’re not available at all banks and credit unions. 

Roth IRAs 

Although Roth IRAs are primarily designed for retirement savings, you can withdraw contributions at any time tax-free. This makes them a good option if you’re looking to save for your child’s college education. 


If your child has any earned income, you could start a custodial Roth IRA funded with their post-tax dollars. These also have to be managed by you till your child turns 18 or 21. When they’re at retirement age, they won’t pay income tax on the money, unlike traditional IRAs.

Certificates of deposit (CDs) 

CDs are low-risk investments that offer a fixed rate of return over a certain period of time. They’re a good option if you want to save for your child’s future expenses with minimal risk. 



What are the benefits of a children’s savings account?

Opening a children’s savings account offers a variety of benefits:

  • Teaches financial responsibility: A savings account can help children learn about the importance of saving, budgeting and money management from a young age. This will help them develop good financial habits as they grow. 

  • Builds savings: A savings account provides a safe and secure place for children to save their money. Thanks to the power of compound interest, they’ll watch their savings grow over time. 

  • Encourages goal-setting: A savings account provides an opportunity to save towards financial goals and teaches the rewards of delayed gratification. Whether those are long-term goals , like saving for college, or short-term, such as buying themselves a bike.  

  • Provides financial security: having savings provides financial security, acting as a buffer in times of emergency or for unexpected expenses. 

  • Teaches banking skills: a savings account can teach your kids basic banking skills, such as how to make deposits and withdrawals, read bank statements and monitor their balances. 

Are there any drawbacks to children's savings accounts?

There are certain drawbacks to children’s savings accounts:

  • Limited financial education: Traditional savings accounts may not come with tools to help kids learn money management skills. A kids’ banking app typically comes with resources to aid your child’s financial literacy.

  • Limited spending flexibility: Children’s savings accounts don’t always come with debit or ATM cards. A kids’ prepaid debit card is a great alternative. It gives your child the chance to make purchases on their own in a safe way. Parents can set limits and monitor their spending.

  • Limited earning potential: A regular child savings account typically offers low-interest rates, limiting your kids’ earning potential over time. A kids’ debit card and app often gives children the opportunity to add to the money in their account by completing extra chores or paid tasks.

How to open a savings account for a child

Account setup varies from bank to bank. Some allow you to open an account online or through a mobile banking app. Others require you to visit a branch in person. 


What do I need to open a savings account for my child?

To open a savings account for your child you’ll need the following:


  • Your child’s social security number (SSN) 

  • Your child’s full name, birth date and contact information

  • Your full name, contact information and SSN

  • Proof of identity: your driver’s license or passport.


You may also need an initial deposit to open the account. To open a UGMA/UTMA account you’ll need to provide documents proving you are the account custodian. 


At what age can a child open a children’s savings account?

In most states, banks require account holders to be aged 18 or over. A parent or guardian must open a children’s savings account and act as a joint account holder until the child turns 18. 


Can grandparents open savings accounts for grandchildren?

Yes, grandparents can open savings accounts for grandchildren. As long as they meet the bank or financial institution’s criteria. To open an account as a joint account holder or custodian, you’ll need to provide personal information, such as your contact details and social security number as well as your grandchild’s. You’ll also need proof of identity.


It’s important to consider the tax implications of opening a children’s savings account as a grandparent. There may be gift tax or estate taxes to pay. For more information, read our guide to children’s savings accounts for grandparents.


What happens to a child’s savings account when they turn 18?

When your child turns 18, most banks automatically convert a child’s savings account to a regular savings account. Depending on the bank, there may be fees to pay and paperwork to sign when that happens. 


There will also be decisions to make. For example, will your child now want complete control of the account? Or will they want you to have some say in the way the account’s managed from then on?


Are children's savings accounts tax-free?

Tax treatments of kids’ savings accounts vary. It depends on the type of account and the amount of interest earned. 


For traditional children’s savings accounts, interest earned is generally subject to income tax at federal, state, and local levels. The amount of tax owed will depend on your child’s overall income.


Some types of children’s savings accounts — 529 Plans and Coverdell education savings accounts allow contributions to grow tax-free, however. Withdrawals are tax-free too, as long as they’re used for education expenses. 


UTMA/UGMA custodial accounts also offer some tax advantages. Earnings are generally taxed at the child’s (usually lower) tax rate rather than the parent’s. 


How can I encourage my child to save money?

It’s important to be patient and consistent when encouraging your child or teen to save money. Here are some tips to help:

  • Set a good example — as a parent, you are your child’s biggest role model. Make sure you’re demonstrating good saving habits yourself.

  • Make saving fun — create a savings goal chart or jar. Let your child decorate it with stickers or drawings and track their progress toward their goal.

  • Explain needs versus wants — help your child understand we can’t always have everything we want and why it’s important to be careful with money. Spend on what you need; save for things you want.

  • Encourage earning money — through chores or part-time jobs your child will understand the connection between work and money and reach savings goals sooner.

  • Offer saving incentives — if your child is struggling to save, offer to match every dollar or give them a small amount of interest on their savings. 

For more ideas, check out 14 ways to save money as a kid


How much should children and teens save?

When it comes to how much you should save, the general rule of thumb for adults is 50/30/20. 50% for needs; 30% for wants and 20% for savings. But how much children and teens should save will vary. It’ll depend on their expenses, their income, and what they’re saving for.


For example, teenagers typically have more outgoings than 6-12-year-olds. But they also have more opportunities to earn from part-time jobs. The key is consistency. 


Kids should get into the habit of regularly putting aside a percentage of their earnings, rather than a dollar amount. It could prove disheartening if they can’t always achieve $25 a month because they have unexpected expenses or earn less from doing extra chores. 


Regularly setting aside 20% of whatever money they have coming in (whether that’s from an allowance, paid chores, or a salary) means they’re saving regardless. 


What's the difference between GoHenry and a savings account?


Although GoHenry isn’t a bank account it works in a similar way. It also offers more benefits and educational features than traditional savings accounts. Here are some of the key differences:

  • Kids from age six can use GoHenry prepaid debit cards

  • GoHenry comes with a separate parent and child view

  • Parents get real-time notifications every time their child uses the card

  • Parents can set spending limits

  • Parents can set allowance tasks

  • Parents can freeze (and unfreeze) the card

  • Parents can decide where the card can be used 

  • Parents can set up one-off or automatic weekly payments

  • Kids can choose their own, unique GoHenry card design

  • Kids and parents can set savings goals in the app and automatically transfer money there regularly

  • Friends and family can send money to your child’s GoHenry account via Giftlinks.

  • GoHenry’s in-app Money Missions accelerate children’s financial literacy.

How to help your child build savings habits with GoHenry

A GoHenry prepaid debit card is a great way to encourage healthy spending and saving habits. Children with jobs can get their paychecks straight to their GoHenry account and track their spending. The app makes it easy for your child to save. They can create a savings goal, set a target date and ask the app to move a set amount of money there regularly.


As well as giving children a feeling of financial independence, GoHenry gives parents peace of mind. You can pay their allowance, set spending limits, and get notified whenever they make a purchase, all via the app.


What’s more, our in-app Money Missions tool makes learning money management skills fun. Through interactive games, quizzes and videos children can learn all about saving, budgeting and more. And GoHenry’s Giftlinks make it easy for relatives and friends to gift cash and boost your kids’ savings, too.
Written by Charlotte Peacock Published Aug 1, 2023 ● 10 min. read