The Best Financial Tool for the Future – Start Savings Account for Teens Today
Many parents are considering their child’s future. Whether it is money for college or educating them on finances, a savings account is always a good choice. Maybe you haven’t considered it a permanent solution, but savings accounts for teens have advantages. That piggy bank you place high hopes it will last as long as the child’s temptation is not too big to break the poor animal. Sure enough, it is one way to teach them to save from a young age, but we live in a modern world, and there are far better solutions out there that are not so easily accessible.
Besides, many parents decide on the amount and then forget about it the first time unexpected expenses appear. Through technology or banking, setting amounts is far more manageable. And it’s done automatically. But, the first thing is to teach a child money management and why it is suitable for their future. Most kids learn from their parent’s example and by doing it themselves. Depending on your teen’s age and what you are trying to achieve, there are excellent options on the market. We are covering some of the most common questions about how a savings account for teens works.
The Best Way to Teach Your Kids the Importance of Saving
If you plan to start saving for your child’s future, starting early in their preteen age is best. It’s not always an easy task, but it is your best shot to get them to understand the concept of budgeting and saving money for their future.
Children learn best through stories, games, examples, doing things, and copying parents. Whichever teaching style you choose, ensure they understand each concept and put it to the test through gameplay. For example, you can set up a make-believe grocery store in your house and give them fake money with a certain amount. Tell them they can buy a specific number of items and leave the rest of the money aside for something bigger. If they overspend, explain why that is unwise and the consequences.
Please make sure they comprehend the lessons. You can explain what they do not understand through practical and real-life examples. Please do not take the conversation to a business-like level because you will lose them in the middle of the sentence. You’ll end up with a child looking at you with a blank expression, or even worse, finding something more interesting to do.
Instead, give them an example of the toy they want. But, they have to know the difference between want and need. Then, compare the toy with sneakers they do not have. Finally, explain why toys can wait and sneakers cannot.
Teaching Kids Money Management Through Examples
If they don’t run in the opposite direction, you can step up the game with stories and books, monopoly, letting them participate in grocery shopping, and setting money jars. A piggy bank is excellent, but they put all their money in a single place. So instead, make three jars: Save, Spend and Share. Each jar contains a percentage of its weekly allowance.
In addition, you can sweeten things up with “Interests.” You can set the percentage they will receive at the end of the month for the money in the Savings jar. You have to be patient, and repetition is the key here. So, explain a problem, why budgeting money is essential, the consequence of not doing it, and the possible happy outcome. Each time you try, a tiny part of what you say remains engraved in their little minds forever.
If you think your child would prefer an app, BusyKid is a simulation of real-life banking. At its core, it is a chore and allowance management application. The app has the same system as jars; you can determine the interests and bonuses based on their performance.
In the background, the BusyKid app offers a prepaid debit card for teens. Each parent account can get debit cards for up to five children between five and sixteen for a monthly subscription of $3.99. The best part is that their parent’s primary account supervises each child’s spending, chores, and allowance.
Teaching them to save and budget their money can help them understand the concept faster and enter their teenage years with sufficient knowledge to open a savings account when they are older. To raise a financially literate and responsible adolescent, you must endure the educational process.
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What You Should Know Before Opening a Savings Account for Teens
You must consider your bank account type when looking for a savings account for teens. Savings accounts restrict how frequently you can withdraw funds, but there are also differences between the banks. Consider many things and choose the correct arrangement for your child. This article will help you understand the basics, how to open one, and some of the best savings accounts for teens.
Top 5 Reasons Why You Should Open a Savings Account for Teens
Teenagers are too old to be treated as kids and are not yet old enough to handle finances independently. Time flies, and before you blink, they are on their way to college. As a result, many parents ponder over whether or not to open that account. In truth, it’s a way of handling real life but in a safe environment. Hence, when you look at it, opening a savings account for teens has many benefits. But, few of them are the most important for their future.
#1. Encourage self-reliance
Many adolescents are in a hurry to grow up and gain their independence. Giving them access to a savings account for teens with their name encourages them to decide for themselves. The truth is the world is a complicated place, especially for adults, a fact that they will find out soon enough. Hence, giving them skills and tools to take care of themselves is the best legacy you can give them. Having an account is more than just spending, teens who work for their allowance get this pretty quickly.
Instead of thinking that money grows on trees, they understand that dollars earned through hard work are not easily spent. However, parents always have an insight into this account, meaning they can practice self-reliance in a safe environment. In addition, you can monitor the performance to see whether they have trouble managing it or are starting to have some bad money habits.
#2. Responsibility Education
Children and many adults are often excited by the notion that their money is “growing” in the bank. The truth behind this is they develop responsibility as they understand that this is occurring because their parents made a choice.
Instead of spending the money, they stored it in a bank account with interest. As a result, they start to understand the concept of cause and effect. In other words, every decision in their life has a consequence, for better or worse. That notion will encourage them to make more responsible decisions in the future.
#3. Developing Financial Literacy
You must have heard about recent studies that only 35% of the American population is financially literate. The truth is kids learn from their parents. If you swipe that credit card each time you are out and about, your children get the notion that it has no limits. That means they will do the same and potentially become wasteful adults, leading to debt.
Before you swipe, tell them why you are doing it and explain the concept behind the card. The best part of parenting is preparing them for the future. With opening a savings account for teens, there are higher chances that your child will grow into a financially responsible adult.
#4. Goal-Setting Education
You must have had a moment in childhood when you wanted something and had to work hard or wait for it. Now, remember the excitement of reaching that goal. Setting money aside for a plan is the same among children and adults, whether it is a new toy, college tuition, or retirement. Beyond the savings account is a sweet prize you set as a goal and achieve. For some reason, this concept works endlessly.
#5. Understanding Delayed Gratification
Similar to goal setting, delayed gratification has an effect. For instance, if your teen owns a savings account and saves their money for a purpose, it will deter them from making an impulse purchase or misspending it. Now imagine their feeling when they understand that it is a far better choice than spending it on clothes or something that can be achieved at any time.
According to research, one of the successful people’s most efficient and productive traits is the ability to wait for gratification. Waiting for something bigger and more satisfying gradually leads to tremendous success later in life.
How to Open a Savings Account for a Teenager
In the United States, minors are not allowed to deposit accounts such as checking and savings accounts. However, most banks across the States enable their parents to open these accounts for them. In other words, the parent is an owner of the account and funds, but their child has access to them.
Children under 18 can have a joint or custodial account with their parents. However, a third account option is a prepaid debit card for teens like BusyKid. These accounts are often utilized as a first step for parents who are apprehensive about creating a bank account for their children immediately. So what is the difference between the three of them?
Since your child cannot open an account independently, you can open a joint savings account with the adolescent. However, some banks have an age restriction, as no person under 13 can make withdrawals from the account without the signature of the adult sharing it.
A joint account allows the youngster and the adult to deposit and withdraw money from the account. Every bank will give you as a parent a way to monitor the account activity and help your teen develop basic money management skills. In addition, you can show them the basics so they can achieve their goal.
Many banks have safeguards if you feel uncomfortable envisioning your child running around and swiping the card. For instance, some banks will never authorize a transaction if there aren’t enough funds available. On the other hand, some abide by federal banking laws, which means they have restrictions.
There is also an option of opening a joint account targeting teens specifically, which means they can access the money anytime. It depends on your teenager’s needs and what is best for them. It is best to discuss rules and restrictions directly with the banker if you think that it might be something that will affect your decision.
Lastly, with a joint account, you cannot remove one or the other owner of the account. However, depending on the bank, you can remove the parent’s name from the account once the minor is legally an adult.
Opening a custodial account means a different concept from a joint account. For instance, if you want to save money for your teenager’s college tuition, this type of savings account is the best choice.
Consider a custodial account if you wish to save savings for your child to utilize later, such as when they reach the age of 18 or enter college. These are also UTMA accounts (Uniform Transfer to Minor Act). In this case, the funds on the account belong entirely to the teenager. But they cannot access it until they are legally adults. Meanwhile, the parent manages the money in the account, which excludes spending the funds.
In a custodial savings account, the adult has complete control and insight into the account. Still, once the teenager turns 18, the account ownership is transferred to them. Simply put, they can use the funds however they see fit.
Prepaid Debit Card for Teens
Prepaid debit cards for teens is the first step toward financial responsibility. It teaches teens the basics of balanced financing while introducing how to spend, save and share their money via debit card. For example, the BusyKid prepaid debit card is designed for kids till 18 years of age. The app supports the card with multiple accounts, of which the parent’s account is the primary one.
One of the parents can release allowance for the teen from their credit card or bank account, which means a child does not have complete access to the account. The app’s interface lets a parent and child decide how much money will go into each section. By default, most parents put a considerable amount of weekly allowance into the savings section. In addition, a parent has a complete insight into a child’s spending as in a joint account.
How Do Teens Savings Accounts Work?
Every possible bank in the world, traditional or online, offers a savings account as a service. As you already know, the bank’s most vital funds source comes from savings and other deposit accounts. The reason why it is attractive is because of interest rates.
Sort of like a passive income for each dollar deposited into a savings account over time. These rates vary unless the bank offers a fixed rate till the exact date. The more they are competitive, the more they will fluctuate. However, the federal fund is the most influential factor influencing the change.
Apart from these changes, there are fees and taxes. Many parents wonder if their child’s savings account is taxed. Children can receive interest on their savings. But, before it is added to the account, it is taxable. So, there are tiny things you have to consider before opening a savings account for teens. And the best way to find out is to ask the bank directly.
These questions can be regarding interest rates. In addition, you can inquire whether or not your child can withdraw funds without your knowledge. Do they have a withdrawal limit, and finally, do they offer any rewards for reaching savings goals?
What Fees and Documents Are Required to Open a Savings Account for Teens?
When you decide on a bank and are getting ready to drive your child to the bank’s branch, you wonder what else you can need apart from your ID. Well, both banks and any other financial institution have different requirements. So, it is best to check with the bank if there are any other papers you should carry.
But depending on the bank, one or more of these documents might be required for residents of the US and their teens:
- Linked account details
- Drivers license
- Birth certificate
- Immunization records
- School photo ID
- Proof of address of residence
Apart from these documents, some banks will require a minimum deposit to fund the new account. Finally, let us not forget that you might be asked for your Social Security Number in the future because of the account’s taxable interest.
Teen savings accounts are pretty simple, but some banks may charge you fees. These are mostly maintenance, daily balance, and opening deposit fees. They vary from one bank to another. So be sure to make inquiries beforehand because some opening deposits can cost anywhere from $25 to $100.
Which Features Should Parents Look for When Opening a Savings Account for Teens?
Choosing the account and its features comes by knowing your goal. People open savings accounts for teens for different reasons. It may be a long-term goal such as saving up for college tuition or a short-term goal such as teaching them financial literacy. Whichever the case, you want to know the best options out there. Because if it is essential for you that your teen can withdraw funds, then some of the accounts available might not be what you are looking for.
The most important part of the savings account is the interest rate. Earning that percentage each month and watching their savings grow is vital for teenagers’ financial education. It starts simple but inquiring about it gives them a sense that not every bank is the same. In addition, the interest rate is the basics of learning. Later on, you can introduce APR and compounding interest. Building one knowledge upon another is more easily digestible. Lastly, some banks also provide promotional rates and more benefits, so it’s worth looking into what’s available.
Many teenagers do not have much money at the beginning, so you don’t want to burden or discourage them from the very start. Instead, choose an account with no minimum balance for opening or that it’s an amount they already have.
There are many ways to deposit money into a savings account for teens. Many banks offer the two most common options in the branch or online. The branch deposit can be an excellent educational experience to show your adolescent how to deposit money physically.
Sure, online banking is just as important, but filling out a deposit slip in the branch can benefit them to comprehend how a savings account works. However, some schools have banking programs, meaning your child can make deposits while at school.
The critical thing to consider is whether or not the bank has an educational program for teens. They are portals that kids can access, and some even provide rewards such as a $5 starter deposit. So your child learns about finances and, at the same time, earns pocket money to place in a savings account.
A reward system is something that makes everyone strive toward the goal. So, to make saving an exciting experience, choosing a bank that offers unique rewards for reaching a milestone or goal is best. For example, if you look at it, if someone gave you pocket money for each task you do during the day, that goal would be easier to complete and with more energy.
Which is the Best Savings Account for Teens?
Choosing a savings account for teens can be difficult and stressful. You don’t want them to get in trouble, and yet if they learn to manage their money, they will be financially responsible adults in the future. Every parent wants what is best for their child. Therefore choosing the best savings account for teens is the same thing.
Capital One Kids Savings Account
Capital One savings account is a joint account between an adult and a minor. It is designed for teens under the age of 18 and parents who are US residents. To open an account, a parent has to provide and connect their personal US bank account. It is not necessary to be with Capital One.
In addition, you don’t have to make an initial deposit to open an account, and you will never be charged a monthly fee. The company has fewer traditional branches because it’s primarily an online banking system. That means you can inquire about the account in the department, but you have to open it online. Their accounts for kids are free of charge, but they have a highly competitive APY of 0.30%.
They have an educational program that gives teens partial access to money and teaches them how to manage their funds. They have lessons on savings tools and parental controls to understand the concept of using the account entirely. They can set their own goals, deposit money, and watch their savings grow.
On the other hand, parental controls are limited to transfers, setting automatic payments, and managing account details. However, the account has a monthly transaction limit of six. That means if you go over the limit, there is a transaction fee of ten dollars. The positive side is that once they turn 18, the account turns into a 360 Savings account. Even an adult account has no monthly fee and no minimum required deposit.
Chase College Account
Chase is a well-known name in the industry. Their college account is a joint account with no fees and a minimum balance. It is designed for kids between 13 and 24 years old. However, when the child graduates, there is a six-month fee.
The downside is that they have minimal interest rates on all savings accounts. However, they offer a free banking app with an easy-to-use interface. There is a wealth of budget breakdowns within the app, and your child can monitor their spending and understand where they waste the most. Chase offers Zelle integration as an additional service, allowing its users to send or receive money online.
Bank of America Minor Savings Account
Bank of America’s minor savings account is a joint account type. It is designed for teens under the age of 18. However, Capital One has a minimum deposit of $25 and a low interest rate of 0.01%. The positive side is that there is no fee until the child turns 18. After that, it automatically converts to a Bank of America Advantage Savings account, with a monthly cost of eight dollars.
As a parent, you can send automatic payments to the savings account. However, remember that you must physically go to a branch to open an account. Luckily they are present in all 50 states. However, this account is insured for up to $250,000 per person by the Federal Deposit Insurance Corporation (FDIC). That means you and your child are protected against the loss of deposits.
Like most savings accounts, this one has six monthly limits on outgoing transactions. The penalty depends on your daily balance and the amount of money you withdraw.
Alliant Credit Union’s Kids Savings Account
Alliant Credit Union account has no age restriction, making it perfect for an early start in a child’s life. What’s different about this account apart from your child’s age is that it has a contribution deposit of five dollars into your child’s savings account. Moreover, their interest rate is 1.20% whenever the balance exceeds $100.
As with many savings accounts, a parent can set a required deposit by selecting the schedule. Furthermore, once your child turns 13, they can add a checking account with 0.25% APY and a debit card for teens. There are no ATM transaction fees, but they have up to a $20 monthly ATM fee reimbursement.
The BusyKid Spend Card is issued by MVB Bank, Inc., Member FDIC, pursuant to a license from VISA® U.S.A. Inc. All cardholders’ funds are insured by the FDIC in accordance with the FDIC’s applicable terms and conditions. For more information about your card terms and conditions, including the VISA® Zero Liability policy, go here. Cliq® is registered ISO/MSP of MVB Bank, Inc.