You may always start a savings account in your own name with cash designated for a baby, but doing so in your newborn's name provides not just a savings vehicle but also a wonderful present and financial literacy tool as your child grows.
The procedure is simple enough, although it does necessitate some planning.
Creating an Account
It is illegal for children under the age of 18 to sign documents.
As a result, you'll need to create an account in your own name. When the child reaches the required age (18 or 13 if the account is converted to a checking account), you can remove your name from the account at the bank.
You will, however, have management of the account while your child is still a minor. You will be able to make withdrawals and deposits and close the account if necessary.
When a parent is also listed on the account, most banks have no difficulty putting the child's name on it. The institution will require proof of lawful parental responsibility for the youngster. You'll need to bring your baby's birth certificate to open the account, as well as both of your Social Security numbers.
Savings accounts frequently have fees, but there are methods to avoid them. Begin by speaking with your present bank. They may allow you to link this new account to your old ones, allowing you to avoid fees and minimum balance requirements.
Otherwise, look for a banking institution that charges minimal or no costs. Some banks waive fees if a particular amount of money is deposited into the account each month.
Another option is to open an account with no service fees if you keep a certain minimum balance—and to deposit that amount as your initial deposit. You might be able to get some tax savings by gifting the money to your child in a Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account.
Keep in mind that funds deposited in these custodial accounts are irrevocable gifts that can only be withdrawn in certain situations.
Adults will like online banking, but you will eventually want to take your child to the bank where the money is kept. Choosing a bank that is close to your home allows your developing youngster to make regular deposits and begin to understand the importance of saving. This method will also introduce your youngster to banking services and other options for interacting with a financial organization other than through the internet.
Many savings accounts pay very little interest. Local credit unions frequently offer the best rates and the added benefit of no fees. Discuss your alternatives with your local banks to see if you can get better loan rates or tax breaks.
As the funds grow, you can transfer them to a more appealing certificate of deposit or investment account, allowing your child to earn more interest on their savings.
Most Commonly Asked Questions (FAQs)
Is it possible for me to start education savings account for my child?
To assist save for your child's education, you can start a 529 College Savings Plan. This is a tax-advantaged savings plan to which anyone can contribute, including relatives and friends. Federal taxes are not due on any withdrawals from the account for eligible school costs. The account may also be eligible for state-level tax advantages, depending on where you live.
Which bank is the best for a newborn to create a savings account with?
Many banks will let you open a separate account for your newborn as long as your name is on it as well. Your location and banking preferences will determine which one is best for you. Using an online bank may allow you to open a higher-interest account for your child and offer them hands-on experience managing their account as they get older.
Is it possible for my child to establish a Roth IRA?
A Roth IRA in your child's name requires taxable income, so it's not a viable savings strategy for a baby. You can start a Roth IRA in your child's name if they have a source of income, such as babysitting or an after-school work, and have paid taxes on it.