Savings Accounts You Can Open for Your Kids

Opening a savings account for your child is a great start on their financial journey. But beyond a basic savings account, there are additional options to consider that may offer tax advantages and higher returns to help make maximize financial returns for your child's future.

Let’s look at several popular savings options you can open for your kids, along with the benefits and factors to consider for each. 

A tax-advantaged account designed to encourage saving for future education costs. 

Benefits:

• Earnings grow tax-deferred, and withdrawals for qualified educational expenses are tax-free. Some states also offer tax deductions, or credits, for contributions to their own state’s 529 plan.
• High contribution limits. 
• Flexible use of funds.

Considerations:

• Various investment options available, which may include portfolios that become more conservative as the beneficiary approaches college age.
• The account owner of a 529 plan has full control over the funds.

Like its name implies, a high-yield savings account offers higher interest or dividend rates than traditional savings accounts.

Benefits:

• Higher interest rates mean higher returns compared to a basic savings accounts, allowing your funds to grow faster. 
• Funds are typically insured up to $250,000 per depositor, per institution.

Considerations: 

• High-yield savings accounts are usually available online, making them easy to manage.
• Interest rates can fluctuate based on market conditions.
• May require a higher minimum balance to get started.

With a Money Market Account, you get some of the best features of a high-yield savings account and a checking account, all in one account.

Benefits:

• Higher interest rates than a regular savings accounts.
• Increased liquidity and accessibility through check-writing and debit card options (with some accounts).

Considerations:

• Money market accounts often have higher minimum balance requirements.
• There may be limits on the number and types of transactions you can make each month.

Custodial accounts allow an adult, or “custodian,” to transfer assets to a minor without the need for a trust.

Benefits:

• These accounts can hold various types of assets, including cash, stocks, bonds and mutual funds.

Considerations:

• Earnings are taxed at the child’s tax rate.
• Once the child reaches the age of maturity, they gain full control over the account.

CDs, sometimes also known as share certificates, are time-based savings accounts that offer a fixed earnings rate for a specified term, ranging from a few months to several years.

Benefits:

• Returns are fixed, making share certificates a risk-free investment.
• Higher interest rates than regular savings accounts.

Considerations:

• Early withdrawal penalties.
• Limited liquidity. 

From providing your child with basic needs, to paying for their must-haves, to securing their future, the expenses involved in raising your child can really add up. Fortunately, there are a number of savings tools to help you save for their future. Use this guide to make an informed decision about choosing the perfect savings account for your child.