When is my child old enough for his or her first savings account?
Well, the answer is: “It all depends.” Just like our discussion last month on paying an allowance, this topic is also very unique for every child and his or her individual pace of development. However, I want to offer some general rules of thumb that may help you come to a decision for your child.
Piggy Bank:I think something that goes hand in hand with a traditional savings account is a physical “piggy bank” of some sort in the household. This is the keeper of birthday money, money from grandma, allowance money, and earnings from chores. The piggy bank (or money box) should start first and then keep going even as your child opens a savings account.
A piggy bank helps children physically see their money accumulate, and that allows you to have conversations around why it’s important to save. I also encourage you to discuss the concept of save, spend, share. Teach your children early on that in addition to spending on things that they want, they need to save a portion of their money for the future and give a portion to those who are less fortunate. This is a great opportunity to get children excited and engaged in the act of philanthropy (mom and dad should lead by example here too). Let them pick the charity or cause and help stoke that internal fire of compassion that will continue as they become adults. It’s really exciting when kids start to get more enjoyment out of helping others instead of using their money for food and clothes.
Ages 4-10 is a great time to open a Bank Account: After the piggy bank, I recommend opening a savings account first and then exploring a checking account as they grow older (we will discuss checking accounts another time). The timing of this can vary greatly, but I generally recommend opening a savings account anywhere between the ages of 4-10. At Call Federal, we offer a high yield youth savings account for anyone under the age of 18. This account pays a whopping 6.00% APY* on the first $1,000, and the regular savings account rate applies to anything in excess of that amount. We have many parents and grandparents who open these accounts for their children and grandchildren shortly after birth to take advantage of the growth over time. At 6.00%, your child can really see his or her money grow (especially in this interest rate environment). This demonstrates the concept of savings and compound interest in an easy-to-understand way.
With the combination of the piggy bank and a savings account, you can really start to have some meaningful conversations about money with your child. I recommend looking at the savings account statement (paper or online) with your children so they can keep track of their money accumulating due to their behaviors (saving). This is a great lesson in delayed gratification.
Additionally, I think it’s great to schedule regular trips to the financial institution (quarterly) where the saving account is held so that your children can connect the dots between depositing their piggy bank funds and the money accumulating in their savings account. Of course as they grow older, money for them will be more electronic than physical, but there is something about physical cash going in that helps to make that connection for many children.
Be Aware Of FEES:One final important note on savings accounts is regarding fees and parental access. When shopping for these accounts, be sure to do your homework. Be aware of ;
~minimum balance restrictions
~monthly maintenance fees
~low balance fees
~deposit/withdrawal restrictions.
Open an account with an institution that you trust to look out for your child’s best interest with regard to fees (local credit unions are a great place to start!).
Additionally, make sure that you have online access to the account and set up email or text alerts so you can monitor the account in real time.
Please share your thoughts on piggy banks and savings accounts below. What has worked well with your children? How do you get them engaged in the acts of both savings and charitable giving?
*APY= Annual Percentage Yield. APY is accurate as of the last dividend declaration date, June 24, 2014, and is subject to change quarterly. 6.00% APY is for the first $1,000.00 and 0.25% APY applies to balances $1,000.01 or greater. CFCU membership is required. Certain restrictions apply.
