You can always create a savings account in your name and designate the funds for your infant child, but opening the account in your child’s name is not just a way to save; it’s a wonderful gift and a tool for teaching your child about money as they grow.
Setting Up the Account
Children under the age of 18 are not legally allowed to sign documents. Therefore, you will need to open the account in your name as well. When the child reaches the appropriate age (18 years old, or 13 if you convert it to a checking account), you can go to the bank and remove your name.
However, while your child is a minor, you will have control over the account. You will have the ability to withdraw money, deposit it, or close it if necessary.
Most banks have no issue including the child’s name on the account if the father or mother will also be listed on the account. The institution will need some confirmation of legal responsibility for the child. You should plan to show your child’s birth certificate, and you will need both of your Social Security numbers to open the account.
Fees
Savings accounts often charge fees, but there are ways to avoid them. Start by speaking to the bank you currently use. They may allow you to link this new account to your other accounts, enabling you to avoid fees or minimum balance requirements.
If not, look for a financial institution that charges low or no fees. Some banks waive fees if a certain number of deposits are made to the account each month.
Another option is to choose an account that offers fee-free services if a minimum balance is maintained, and make that amount your initial deposit. You may also reap some tax benefits by presenting the amount as an official gift to your child, which involves setting up the account as a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account.
Note: You should keep in mind that funds deposited in these custodial accounts are gifts that can only be withdrawn under more restrictive circumstances.
Location
Online banking is great for adults, but ultimately you will want to take your child to visit the bank where the money is. Choosing a bank close to home will allow your growing child to make regular deposits and start appreciating the value of saving. This way, your child will become familiar with banking services and other alternatives to strictly electronic interaction with the financial institution.
Investment Ideas
The interest rates on many savings accounts are low. The best rates are often available from local credit unions, which also frequently offer the added benefit of no fees. Discuss options with local banks that might provide you with better interest rates or tax advantages.
You can also transfer funds to a certificate of deposit or a more attractive investment account as the amount grows, allowing your child to earn more interest on savings.
Frequently Asked Questions
Can I open a savings account for my child’s education?
You can open a 529 college savings plan for your child to help save for their education costs. This is a tax-advantaged savings plan that allows anyone to contribute, including relatives and other friends. Any withdrawal from the account for qualified educational expenses is exempt from federal taxes. Depending on where you live, the account may also qualify for state-level tax benefits.
Which bank is best for opening a savings account for an infant?
Most banks will allow you to open an account for an infant, as long as your name is also listed on it. The best choice depends on your location and banking preferences. Choosing an online bank may allow you to set up an account with higher interest rates, and it will give your child practical experience in managing their account as they grow.
Can I start a Roth IRA for my child?
You must
Your child must have taxable income to have a Roth IRA account in their name, so a Roth is not a good savings plan for an infant. Once your child has income, such as earning a paycheck from babysitting or a job after school, and pays taxes on that income, you can open a Roth IRA account in their name.
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Sources:
– California Legislative Information. “Family Code – FAM §6701 – Capacity to Contract.”
– Wells Fargo. “Kids Savings Account.”
– Wells Fargo. “Teen Checking: A Guide to Your Common Checking Account Fee,” Page 1.
– Bank of America. “Child Savings Accounts.”
– Wells Fargo. “Way2Save® Savings.”
– Bank of America. “Personal Schedule of Fees,” Page 6.
– Bank of America. “Custodial (UTMA) Savings Account for Children.”
– National Credit Union Administration. “Credit Union and Bank Interest Rate Comparison.”
Source: https://www.thebalancemoney.com/savings-account-for-a-baby-2085556
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