Banks offer several options that enable parents and others to set up accounts for children. The accounts may be established for long-term needs and short-term expenses alike. Interest accounts allow children and their parents to deposit their savings and watch their money grow over time. Also, some banks allow minors to open checking accounts, which enable them to track and manage their funds and spending.
Education Savings Accounts
Education savings accounts are established to help pay the education expenses of beneficiaries. These accounts are often set up for individuals under the age of 18. Parents, grandparents and other interested individuals may set up education savings accounts, if they meet specific income requirements stipulated by the financial institution. The funds may be used to cover elementary or secondary school expenses as well as college expenses. These accounts can be set up with mutual funds, brokerage funds and banks, and there are usually maximum annual contribution amounts for each account. Most education savings accounts are nondeductible, and the withdrawals are usually tax-free.
Interest-Earning Savings Accounts
Many banks offer interest-earning savings accounts designed specifically for children. These accounts allow children to securely place their funds in the accounts, and the interest compounds each year. Adults may also connect their accounts to their children’s accounts and make electronic deposits to the accounts. Some interest accounts require that the account maintains a minimum balance; however, some banks do not require children’s accounts to have a minimum balance. By opening a children’s interest-earning savings account, kids can deposit their savings without being subjected penalty fees. These accounts also teach children the importance of saving money and financial responsibility.
Joint Checking Accounts
Some banks allow parents to open joint checking accounts with their children. The accounts are shared between the parent and child, and both have access to funds in the accounts. The parents have an opportunity to establish limits, such as withdrawal limits and track their child’s spending habits. Some accounts have no fees for minors. However, state laws may set specific age requirements for minors to have checking accounts. Other state laws may also apply, although banks also usually establish their own policies for checking accounts.
Parents can open custodial accounts for the benefit of their children. These accounts are established under state Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. Once the funds are transferred to the account, they become irrevocable. The custodian, who is usually the parent, oversees the account while the child is a minor. The custodian manages the funds and may use the funds to provide for the child’s necessities. The child then acquires control over the account when he reaches stipulated adult age.
Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.