Overview
Opening a bank account for a baby can be confusing. Why would a newborn need a bank account? What are the benefits? How do you begin saving for your baby’s future?
And what’s the process for opening a savings account for baby?
This article will explain why starting a savings account for a baby is an important step toward providing a solid financial foundation for your growing child.
Why Open a Bank Account for Baby?
Face it: It can be a struggle to save, especially when you have kids. Many of us live paycheck to paycheck and scramble to find extra money to use after paying the monthly bills.
Although it can seem unreasonable to find even more money to save in a bank account for baby, it is not impossible.
In fact, opening a bank account for a baby is something you should absolutely consider as a parent. Think of the future financial obstacles you and your child are bound to face:
- Expense of a first car
- College tuition, books, and living expenses
- Possible high-cost medical expenses (braces, broken bones)
- Child’s first home and related expenses
Putting just a small amount of money into a savings account for baby can make a significant difference in baby’s financial well-being in the future, and it can save you a lot of out-of-pocket costs. Think pocket change can’t possibly impact your baby’s future? Think again.
Research actually shows that opening a savings account for a baby can increase the likelihood of that child attending college because funding will be more easily available when your child is ready for college. Owning a baby bank account also teaches your child to save and teaches the value of a dollar, both important skills to have as your baby grows.
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When Should You Begin a Savings Account for Baby?
No, a baby doesn’t necessarily need money; his parents do! Is it ever too early to consider opening a savings account for baby? The simple answer is no. Starting a savings account for a baby is a smart choice as soon as your baby is born, or even while you are pregnant.
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Did you know that an investment of $100 per month in a bank account for baby beginning when your baby is born can turn into $35,000 when your child is 18 years old after interest is added? This amount can pay for a college degree, or at least provide an excellent start. It can easily become a down payment on your child’s first home. Wouldn’t you have wanted that kind of help when you were starting your adult life?
If you can’t afford $100 per month, there is no need to worry. Save pocket change, save $1 per week, or put your job bonuses as you make them into your baby bank account; every little bit helps. If you are unsure of how much you’ll need to add to your savings account for baby to reach your specific goals for your child, this calculator can help you create a plan.
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Finding the Best Savings Account for Your Baby
Since saving for the future can be an overwhelming process, we want to guide you in finding the best savings account for your baby that makes the most sense for your family and your goals for baby. The first step is understanding that a baby savings account comes in a few different forms. What type of baby savings account is right for you? Here are a few of the most commonly used baby bank account types:
- Dedicated baby savings account
A dedicated savings account for your baby is just what it sounds like: A savings account within a financial institution dedicated to your financial goals for baby that allows you to deposit and withdraw money.
Most savings accounts incur interest on your deposits, so the longer you keep money (and the more of it you save) in your baby savings account, the more interest will add up over time.
Opening a bank account for a baby also requires you to choose which type you want to open: Typically Joint, Sole, and Minor By are options. With a Joint account, you and your child will both have access. A Sole account allows your child full control of deposits and withdrawals. A Minor By account will allow your child full access to the account when he turns 18.
- 529 college savings account
A 529 college savings account is a great option to consider when starting a savings account for a baby. If your goal for saving is to provide a way to fund your child’s college tuition, a 529 Plan is the way to go.
A 529 Plan differs in each state, so check with your specific state for more information and requirements. However, a plan you get in your state will still be useable for college tuition in another state, so long as the institution is eligible.
A 529 Plan is an alternative to opening a savings account for a baby but still allows you to save money for your child’s future — and for a specific purpose. A 529 Plan will be free from federal taxation when the money is withdrawn for college tuition, and they require very little maintenance with automatic bank account or payroll deposits.
- Life insurance policy
On your search to finding the best savings account for your baby, you might come across the option of life insurance. Life insurance for a baby? It sounds strange and some financial experts will say it can be an unnecessary cost, but it actually can be the perfect option for your family.
The main type of life insurance to consider as an option for a savings account for baby is whole life insurance. Whole life insurance covers your child through life. A whole life insurance policy, for example, will add up throughout your child’s life, and your child can take over when he’s of legal age or withdraw the money if he chooses at that time.
Whole life insurance policies for baby typically cost a small monthly premium, depending on how much coverage you choose. A lower amount, like $10,000, will result in a lower monthly premium. Some policies have the added benefit of doubling in value when your child reaches the required age so long as premiums are paid on time.
If you’re searching for a way to save that is similar to a bank account for baby in that the money you put into it will increase over time, a life insurance policy for your baby is a great way to give her financial options in the future.
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A Guide to Opening a Savings Account for a Baby
Now that we’ve covered why you should open a savings account for your baby, finding the best savings account for a baby, and the types of savings accounts you might want to consider, we need to cover the details on opening a savings account for baby. Before you delve into opening an account, do your research. Grab a pen and paper and jot down some notes to help you create a plan for your baby bank account.
Image source: Pixabay
Things to Consider:
- What is your main goal for your child’s savings? College, first home, first vehicle, or general savings to help jump-start his adult life on his own?
- What type of baby savings account makes the most sense for you and this goal?
- How much can you afford to save out of each paycheck?
- Where do you want to save your child’s money? Do you have a trusted bank you already use, or does another bank or institution have more benefits?
- How will you stay organized to ensure you are meeting your goals? How often will you monitor your savings account for baby for accuracy?
Once you have your preliminary answers to these questions written down, you are off to a great start and have completed the first step in opening a savings account for a baby. It’s okay if these answers change as you complete some research, as long as they are getting you closer toward your savings goals.
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Research Financial Institutions
Researching financial institutions before starting a savings account for a baby is so important because you want to ensure that you are beginning a worthwhile investment and reaping as many benefits as you can. Check each prospective bank or institution for the following criteria:
- What types of savings accounts does it offer, and how do they differ from regular checking accounts or other savings accounts?
Ask if the institution has specific savings accounts for babies and how the interest rates and benefits differ from other savings accounts or checking accounts from that institution.
- Does the institution have any added benefits for those who are already customers?
If you are already a customer of a particular bank and have a good rapport, check if there are added benefits for you, such as better interest rates or ease of money transfers.
- What are the interest rates and penalty fees?
You should ensure that your baby bank account has the best interest rate possible so your child can reap the benefits of compounded interest when it’s time to use his money in savings. You will also want to make sure that, should you ever need to withdraw money early, penalty fees are minimal.
- What is required for opening a bank account for a baby?
Most financial institutions make opening a savings account for baby rather painless, which is good, but you should always make sure the institution you choose takes its customers’ identities seriously. A reputable bank may ask for extra documentation to validate your child’s identity and to ensure you are his or her legal parent or guardian.
You’re Ready to Open a Bank Account for Baby!
Most financial institutions will now allow you to fill out an application online for a baby bank account, but you may have to complete the process in-person so a banker can validate you and your baby’s identities. You will usually need to have your child’s birth certificate and his or her Social Security card, as well as your state-issued photo identification card and Social Security card. Other types of savings, like the 529 Plan and life insurance, can typically be applied for online.
Check over all the terms of the savings account for baby before you leave the institution and ask plenty of questions before signing papers. You will want to double check the rules for a minimum balance, auto-deposits, and penalty fees, if any.
Once your account is open, set a goal to monitor it at least monthly. Doing so will help you see how much you are saving within that time period and how interest will affect your savings. From here, you can tweak your savings goals, if necessary.
As your baby grows older, don’t forget to teach your child about saving money! What better way to do so than to show him with his own savings account? Children as young as two years old are capable of learning the basics of money and how it’s used.
We hope this article gave you insight into why your baby deserves a savings account and how you can plan for her financial future even before she is born. Please feel free to contact us with comments and questions!
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