Children enrich our lives in so many ways, but they sure don’t come cheap! Every parent knows that expenses start the moment the pregnancy test comes back positive (if not sooner) and can seem never-ending. From providing basic needs like food and clothing to paying for their must-haves and securing their future, costs add up fast.
Fortunately, there are easy ways to save for your child’s future to make these expenses more manageable. Let’s explore some popular savings options, along with their benefits and key considerations.
High-Yield Savings Accounts
High-yield savings accounts offer higher interest rates than traditional savings accounts, making them an excellent option for growing your child’s savings.
Benefits:
- Higher interest rates help savings grow faster.
- Safety, as funds are typically insured up to $250,000 per depositor, per institution.
Considerations:
- Interest rate variability means rates can fluctuate based on market conditions.
- Accessibility is usually online, making management easy.
Money Market Accounts
Money market accounts combine features of savings and checking accounts, offering higher interest rates with some access to funds.
Benefits:
- Higher interest rates than regular savings accounts.
- Liquidity, with some accounts offering check-writing and debit card options.
Considerations:
- Minimum balance requirements can be higher.
- Limited transactions, as there may be monthly limits on withdrawals.
Custodial Accounts
Custodial accounts allow an adult to transfer assets to a minor without setting up a trust.
Benefits:
- Flexibility to hold cash, stocks, bonds, and mutual funds.
- Control, as the custodian manages the account until the child reaches adulthood (18 or 21, depending on the state).
Considerations:
- Tax implications, as earnings are taxed at the child’s typically lower rate.
- Ownership transfer, meaning the child gains full control once they reach adulthood.
Share Certificates (Certificates of Deposit - CDs)
Share certificates offer a fixed interest rate for a set term, making them a stable savings option.
Benefits:
- Guaranteed returns, offering a predictable way to grow savings.
- Higher interest rates for longer-term certificates compared to regular savings accounts.
Considerations:
- Early withdrawal penalties apply if funds are accessed before maturity.
- Limited liquidity, as funds are locked in for the term of the certificate.
Opening a savings account for your child is a smart way to secure their financial future and instill good money habits early on. Use this guide to choose the best savings option for your child.
Looking for a great place to start? Check out our Youth Savings options to build smart financial habits from an early age!