That’s an important question. The answer may vary from family to family. That said, we have some thoughts about the best time to open a savings account for your child – and how much you should contribute to it. Here’s what you need to know.
What is a Child Savings Account?
Simply stated, a child savings account is an account for a child. You’ll open the account as an adult and designate the money in it for your child.
A lot of banks and credit unions have youth savings accounts. For example, at Addition Financial, we have two types of youth accounts:
It’s easy to transfer an Origin Savings account to a Vibrant Savings account when your child turns 13. The Vibrant Savings account gives your child more financial freedom.
We want to make it easy for you to save for your child, which is why we have a low minimum deposit of just $5 and a minimum balance for dividends of just $50. Kids also earn extra Fun Bucks when they save money.
When to Open a Child Savings Account
You can open a child savings account at any time between your child’s birth and their 18th birthday. However, we believe that it’s best to open a child savings account immediately after the birth of your child or – if it’s too late for that – as soon as possible.
Why? Well, child savings accounts accumulate interest and even small, regular deposits can add up over time. For example, if you opened the account with a $100 deposit and contributed just $5 per week to your child’s account from the time they were born, they’d have $4,780 by their 18th birthday, not including interest. If you upped it to $10 a week and factored in 2% interest, the amount would rise to $11,500.
At Addition Financial, all you need to open a child savings account is a membership with us, a $5 minimum deposit and a copy of your child’s birth certificate.
Another benefit of opening a child savings account early is it gives you the opportunity to teach your child about money and savings at an early age. When your child is old enough, you can show them their savings pass book and explain the benefits of saving money.
As they get older, you can encourage them to take money they receive as gifts and add it to their savings. They can also learn how to save up for a purchase, how interest accrues and other key financial skills that they’ll carry with them into adulthood.
How to Start Contributing to a Child Savings Account
Let’s talk about how to start contributing to a child savings account. You have several options, and you may want to contribute in more than one way.
Make a “Welcome to the World” deposit when your child is born. The amount can be small or large. Some parents like to choose a symbolic amount, while others start with the minimum and build from there.
Set up a regular weekly or monthly transfer from your account. As we mentioned above, a $10 per week contribution can add up to more than $11,000 by the time your child is 18. And that’s not counting any additional deposits you make.
Deposit any cash gifts your child receives into the account to add to their savings. Talk to your child about it when they’re old enough to understand.
Encourage kids to save. Even when your child is old enough to want to spend some of the money they get, put a rule in place that requires them to save a certain percentage of what they receive. For example, some parents use a system that requires kids to spend no more than 20% of what they get, save 60% and give the remaining 20% to charity.
Making regular contributions and encouraging your child to do the same will teach them the value of saving and set them up for a lifetime of financial success.
Contributing to a child savings account is a good way to save money for your child and teach them about financial responsibility at the same time.
Are you ready to open a child savings account for your child? Click here to learn about Addition Financial’s Origin Savings and Vibrant Savings accounts for kids!