How to Compare Child Savings Accounts
Opening a savings account in your child's name helps him to understand the value of money, saving up for items and compounding interest. He can save for college or he can save for other things that he wants. There are two main types of savings accounts for children--regular custodial savings accounts at the bank and savings plans that you can use only for educational purposes, such as 529 plans.
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Instructions
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Learn about the different types of accounts to decide which one you want. If you want her to have a place to put her money where it can earn interest, but still be available for withdrawal at any time, you'll want a custodial savings account. If the main purpose of the account is to save for college, investigate a 529 plan or a Coverdell Education Savings Account.
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Talk to your tax accountant about the tax implications of these accounts. The earnings on your education savings accounts are tax free if you use the money for educational expenses. The interest on a regular savings account is taxable. Additionally, ask about the maximum amount that you can give your child per year before paying a gift tax on the money.
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Compare potential earnings between savings accounts. With the traditional savings account, the bank will pay your child a small amount of interest; you should compare accounts at different banks. Educational savings plans are based in the stock market and can earn higher returns, but can also lose money.
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Consider the ways that your child can use the money. When your child turns 18, he becomes the primary account holder of a custodial savings account. This means that he can use the money for anything he wants--which may not be the same things that you would choose. Your child can only use the money in an educational account for educational expenses.
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References
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