Starting a Children's Saving Account

The struggling economy causes many worries about both the present and the future. Many people fear that they will not have enough money saved to send their children to college. One way to ease such financial worries is to start a children's savings account. Doing so ensures that you will already have a good financial base for your child's future, whatever that future may be. Giving your child his or her own savings account is also an excellent way to teach fiscal responsibility as the child gets older.

Instructions

1. Consider the purpose of the account. Do you simply want a safe place where you can set money aside for your child or do you want the savings account to be more of an investment in your child's future? This will be the determining factor on what type of account you choose to open so ponder this carefully.

2. Choose the type of savings account you will want to open. Most likely, you will choose either a basic savings account or a CD depending on the age of your child. A CD with a high interest is probably the best idea if your child has just been born. This way, you can allow the CD to rollover for years until you're ready to open a regular savings account.

3. Determine how much involvement you want your child to have with the savings account. Barbara Weltman explains that most banks have two distinct savings accounts for children. A "statement account" gives your child a copy of the monthly statement for that account while a "passbook account" offers a replica checkbook which illustrates every deposit and withdrawal that takes place within the account. You could also choose to leave your child completely out of the loop when it comes to the savings account until you feel he or she is ready for that responsibility.

4. Find the right bank for your child's savings account. This should be the bank with the highest interest. Contact local banks in your town or city to find interest rates. You can also use an online bank, such as ING.

Tips & Warnings

• Almost every bank will allow you to limit what your child can do with the account. In most cases, the child will not be able to withdrawal any money from the account without you being there with the child. You will have to sign off on the withdrawal, as well. This allows the child to take money out of the account from time to time, helping to teach him or her fiscal responsibility. It also gives you peace of mind that all of the money in the account won't disappear tomorrow at the local toy store. Know what you want to do with the account once the child turns 18. After that, you most likely will no longer be able to stop your child from removing money from the savings account. You may want to reinvest some of that money before your child's 18th birthday.

• Don't assume that your child knows how a bank actually works. Most kids believe that a bank is nothing more than a place where money is kept. Be sure to explain things like interest, the difference between a checking and savings account and why it's important to be at a bank that is insured by the FDIC.

Resources

• Barbara Weltman Excerpt
• ING Direct