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A bank account will help your child learn about and save money

As a parent or guardian, you want to ensure that you are doing everything in your power to set your child up for success. You encourage your child to pursue his or her dreams. Many of those dreams, however, require money—from saving for a new toy, to buying a first car, to attending college.

The achievement of these dreams, no matter how big or small, is rooted in financial literacy, which begins at home. Often, that first teachable moment is setting up a bank account for your child at the banking institution of your choice. 


Do set up an account that earns interest

Gifts to your child on birthdays, holidays, and other special events should be kept in a bank account—not in a safe. An account will provide a secure vehicle for your child’s gifts to be deposited. Depending on how you choose to use it before your child is old enough, the interest any untouched money will earn through the years will provide your child with an excellent financial foundation.

Do ensure that the account is custodial in nature

A custodial account opened by you is for the benefit of your child. You are responsible to use the funds for the sole benefit of your child, with few exceptions. Should you open a “Uniform Transfers to Minors Account” (UTMA), you have the legal right to act on your child’s behalf while he or she is a minor. Your child’s social security number as the tax ID number is required (apply for it after your child is born), so that any income (interest paid) to the account is taxed to your child.

There are income tax benefits to this, in most cases. Keep in mind, however, if you do not want this type of account, as it does come with restrictions, many banks offer other types of savings accounts for children without these restrictions. 

Do choose a bank with interactive activities for younger children

If the first interactions are positive, your child will continue to look favorably upon banking and saving. Choose a bank that will engage your child during the visit, whether it is through an interactive coin counting machine, distributing coloring books and crayons, coin banks for your child to collect loose change, or a simple lollipop. Teaching that depositing money can be fun, while also important to long-term stability, is an integral step in preparing your child for a financially secure future.

Do share financial knowledge with your child

Explain to your child that an account has already been opened in his or her name, while highlighting the importance of saving at an early age. This early lesson will help lay the groundwork necessary for grasping other future banking activities.

Do change the account status when your child becomes of legal age

When your child turns 18, should you choose to allow your child to have independent access to the funds in the account, you should close the account and have your child open one in his or her name using his or her own social security number as the tax ID number for the account. Be sure to check your state’s requirements for when your child turns majority age, requiring the UTMA account to be closed. In most states, majority age is 21, however in some it may be 18.


Do not give your child complete access to the account at a young age

Begin saving all of your child’s money in the savings account. As your child grows older and is in need of anything, you—as the custodian on the account—are able to withdraw the money to meet that need, if that is what you choose to do with your child’s account. Remember, if the account is a UTMA, the funds withdrawn are to be used for your child’s benefit.

Do not assume that all accounts are the same

Be sure to check minimum balance requirements to open the account and to avoid monthly service charges, interest rates, and fees if the account drops below that minimum balance requirement. Since you’re the custodian on the account, it’s important that you pay close attention to these things in order to protect your child’s money from any avoidable fees.

Do not rely solely on technology for banking

Major technological advances are being made each day. That said, because a bank offers online, mobile banking and ATM’s does not mean that you should teach your child to rely only on these for all banking needs.

Technology is a fantastic added benefit, but the value shown when the employees of your bank remember your child’s name, providing a personal touch, is unmatched. Bringing your child into the physical bank location will also prepare him or her for a lifetime of intelligent banking, and smart banking decisions. 

Do not forget to do your homework

Research area banks before choosing the best option. Remember that this account is not for you; the details should benefit your child. However, it’s important to find a bank that meets the needs of everyone in the family, for that added convenience of one-stop shopping. Select a bank that offers the products and services, hours, and days open, and excellent customer service that meet the family’s needs.

Do not minimize the importance of saving for college

As the cost of tuition continues to rise, the number of parents or guardians who normally would pay for the entire collegiate expense is expected to fall, placing an enormous burden on young adults. Stressing the importance of saving for college from an extremely early age will prepare your child for the future. Even consider establishing your child’s bank account as one of the ways to save for college, or divide funds between two different savings accounts—one for college and the other for personal funds when they turn 18 years old.

Jumping cartoon

Teaching effective banking habits and opening your child’s first account early in life are essential for long-term financial success. A solid financial plan will prevent your child from feeling overwhelmed and under prepared, especially as young adults focused on paying for college, buying a house, and planning for retirement. Teaching your child about smart banking will surely aid in adolescent-to-adult economic success.

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Rhonda S. CostelloExecutive Vice President & Chief Retail Officer

Rhonda S. Costello is the Executive Vice President and Chief Retail Officer for Republic Bank. Rhonda is responsible for directing the success of Republic Bank’s store network. Additionally, she oversees Cash Management/Government Banking, Con...

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