In most states, a person must be 18 years old, but that doesn’t mean children can’t start saving.
Age Requirements for Savings Accounts
Opening a savings account with a bank means you are entering a legal agreement with the financial institution. For this reason, it can be difficult for children to open an account on their own. Children under 18 are not allowed to sign contracts, although the specific ages and prohibited activities can vary from state to state. Typically, an adult opens a savings account on behalf of someone younger than 18 or in a joint capacity with them. There is no minimum age to open a savings account, and some parents even begin to open accounts for infants.
Why Can’t Minors Open Their Own Accounts?
There is no law expressly stating that minors cannot open savings accounts, but they are unable to sign legal documents in most states. This means they cannot enter into a legal agreement and therefore sign the documents to open a savings account on their own. This is specific to those under 18, but the age varies from state to state. For example, Nebraska recognizes minors as those under 19 years old. Each state has what is known as the age of majority, which governs activities and defines accountability for actions. Legally, parental and guardian obligations end when a child reaches that legal age.
When Should You Open a Savings Account?
Identify the financial goals you have for the child when opening a savings account. Do you want them to learn healthy money management skills? Are you encouraging them to save money to buy something big? If the answer is yes, these are great reasons to open a savings account for a minor. A savings account can give your child an opportunity to access financial education and hands-on experience in handling money.
If you wish to save for college tuition or have assets you want to share when the child reaches legal age, your best options may be 529 plans geared towards saving for educational expenses and uniform gifts to minors/transfers to minors laws (UGMA/UTMA) for transferring assets, including non-cash assets.
How to Open a Savings Account for a Child
The first step to opening a savings account for a child is to shop around and find the best options that suit your family’s needs. Some factors to consider include:
- Minimum deposit
- Balance requirements
- Fees or other costs
- Best interest rates
- Branch locations of banks offering personal banking services
- Available educational resources
- Accounts specifically for children
You will need to decide whether you want to open a savings account or a custodial account, such as an UGMA or UTMA account. For both types of accounts, contributions are irrevocable, which imposes restrictions on any withdrawals. An UGMA account contains only financial assets, like cash and securities (stocks, bonds, and mutual funds) and insurance policies; a UTMA account can include tangible and intangible assets, such as real estate.
Shop around to find a low-cost or no-cost youth savings account with the highest interest rates – a bonus for making your money work hard for your child’s success. Once you find an option that meets your requirements, opening a savings account for your child is usually easier if you’re already banking with that specific institution. You will need to provide identification for yourself and the child, such as Social Security cards, birth certificates, and government-issued IDs. Lastly, you will make an electronic funds transfer or write a check to cover the initial deposit.
Minor Accounts vs. Regular Savings Accounts
Some banks may offer a special savings account for minors, sometimes referred to as a student account or youth savings account. The minor account includes shared ownership between the parent and child with additional parental oversight and monitoring of activity. Banks may also offer special benefits for youth accounts, such as educational content to help nurture their financial literacy.
Will
Banks determine what happens to a minor’s account when the child turns 18 or the legal age in the state. Some may convert to a regular savings account with interest linked to fees. Other banks may retain joint ownership between the guardian and the minor unless notified otherwise.
Frequently Asked Questions
How much money do you need to open a savings account?
The minimum deposit varies from bank to bank, and you’ll want to pay attention to the amount you need to open the account in your research. Credit unions or youth savings accounts may be the best option for minimum deposits.
How do you open a high-yield savings account?
The main difference between a regular savings account and a high-yield savings account is the amount of return you earn based on interest. The process for opening both is the same. Research the options available to you and open an account at the specific financial institution.
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Sources:
- U.S. Comptroller’s Office. “Guidelines for Encouraging Youth Savings Programs at Financial Institutions and Addressing Related FAQs,” page 2.
- Charles Schwab. “First Steps to Your Child’s Financial Future.”
- Nebraska Legislative Council. “Revised Statute of Nebraska 43-2101.”
- Cornell Law School. “Legal Age.”
- FINRA. “Saving for College: UGMA and UTMA Custodial Accounts.”
Source: https://www.thebalancemoney.com/how-old-do-you-have-to-be-to-open-a-savings-account-5443084
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