Savings Accounts for Kids
Teaching children the value of saving money can have beneficial, far-reaching consequences and should be started as soon as possible. As children often take their cues from a parent's behavior, practicing moderation when making purchases is one of the keys in instilling the concepts of money and investing in your children. There are several savings accounts available exclusively for kids, and knowing the advantages and penalties of each one can help parents make the right choice.
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Coverdall Education Savings Account
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A Coverdell Education Savings Account (ESA), is designed for parents to open an account for their child's education. Contributions for the beneficiary (the child) of the account cannot exceed $2,000 per year, even if there are multiple accounts set up for the same child. A beneficiary is defined as anyone under the age of 18 or anyone with a special need. ESAs may be opened at any time, but when the beneficiary reaches the age of 30, any remaining funds in the account must be withdrawn, subject to a tax on the interest generated at the time. According to the Internal Revenue Service, distributions (withdrawals) are tax-free if used for enrollment or attendance at an eligible educational institution. A key distinction with this account is that unlike some other savings plans, the child owns the ESA. However, if parents know their contributions will exceed $2,000, another savings plan may be better.
ING Direct Kids Savings Account
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In October 2010, ING Direct introduced an online Kids Saving Account program that allows adults to open one or more joint accounts in a child's name. The program yields a 1.10 percent variable annual percentage, and has no fees or minimums. A child can sign in to view his account information by entering his customer name and personal identification number, allowing him to check his balance, change personal information and download an account history. In order to access money, children must have the adult on the account sign in. To add money, the adult account holder can transfer money electronically into the kids' account, or mail a check to ING Direct. When a child turns 18, the Kids Savings Account is automatically converted to an Orange Savings Account.
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Young Americans Bank
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Young Americans Bank located in Denver, Colorado, is the world's only financial institution designed exclusively for customers who are 21 years old and younger. The bank offers savings and checking accounts, loans, certificates of deposits and credit, debit and ATM cards. The bank also offers fun classes for children to learn about the value of saving money. A sponsoring adult must co-sign to open a savings account for a child under 18, and a social security number is required for both parties. The minimum deposit is $10, and the interest rate of 0.1 percent is paid quarterly. Children are allowed four withdrawals per month without charge, and there is no monthly service fee as long as a deposit or withdrawal is made once every three years. Accounts can be opened by visiting the bank or by mail for customers outside Colorado. "Kiplinger" rated the Young Americans Bank as the best accounts for kids in its 2010 Best Credit and Savings Deals rankings.
Bank of America UTMA Custodial Savings Account For Children
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Bank of America offers a custodial savings account for children under the age of 18 or 21, depending on state law. A minimum of $25 is required for an adult to open the account, and funds can't be accessed until the child reaches the legal age of the state in which he resides. The interest rate of 0.05 percent is compounded and paid monthly. There are no monthly fees if the account maintains at least $300, otherwise the fee is $5. The account can be opened by applying online at the Bank of America website, or by visiting a local bank.
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