Setting Up Bank Account for Baby? Here’s How + Best Savings Plan for Child

Setting up bank account for baby? Let me walk  you through how to do it, considerations to make, and one of the best savings plan for children.

young mother with baby, under covers, text overlay "what type of account should I open for my baby? Plus the best savings plan for a child"I've made it through cloth diapering, 2:00 a.m. feedings, and car seat installations. Now, I'm totally in the mode for setting up bank account for baby!

Our little one made his debut over a year ago. Being the financial nerd that I am − plus a darn good planner − I thought it would be awesome for me to set up a savings account for baby now while he's still in diapers to catch all of the generous birthday + holiday cash gifts throughout his childhood.

I mean, can you imagine the possibilities of how much that account could earn for him over the next 18 years?

That was 13 months + about 1,000 diaper changes ago. *womp, womp*

But you know what? There's no better time than today for me to do this, or for you to do this (even if your “baby” now sports braces).

Here's what to consider when setting up bank account for baby.

What Do I Need to Open a Bank Account for My Child?

Kids under the age of 18 cannot open up a bank account on their own. So you'll be opening a custodial bank account (here's some of the in's and outs of a custodial bank account). This means you will be part-owner to this account.

If you open a savings account at a brick-and-mortar bank, you'll need your documentation as well as your child's documentation in order to do so.

Hint: When I opened my son's online savings account using the Capital One Kids Savings Account, I simply needed my son's Social Security Number, birth date, and other information but I did not have to provide the actual documents. 

With bank accounts for kids, both of you will need your social security cards or just the numbers (not sure where your child's social security card is, or perhaps you haven't applied for one yet? Here's more info on how to get your child a social security number).

What Type of Bank Account Should I Open for My Baby?

Unless your child has a business and needs to write checks for it, your best bet is to choose a savings account. The reason is because the money is more difficult to access than if you had a checking account tied to an ATM machine.

Also, their money can earn interest. And if your child is not particularly excited about holing their money up in a bank, have them do this money-growth experiment using their new account.

Yes, checking accounts with interest earnings exist. However, your child's earnings will be less if you use one of them.

Psst: Want a child bank account with debit card? Check out my review of allowance and chore apps for kids, several of which have debit-like cards attached to them. 

Here's How to Choose an Account with the Best Earnings Potential

You know how the best outcomes come when you plan with the end in sight? Well, your endgame when setting up bank account for baby is to get your child's money to earn as much as possible over the next decade or however long they have until you turn the account over to them.

You can do that by making the right choices from the beginning. For example, you want an account that:

  • Compounds Daily or Monthly: The more frequently your savings account compounds interest, the more money it will make. Trust me on this one. And time is on your child's side (especially if they're still in Stage 4 diapers!).
  • Has No Fees: Just like fees can eat away from your retirement account over the years, monthly account fees can eat away at your child's growing savings. You need to find a savings account that does not charge a fee for low balances. And you don't want to pay for other account fees either. Some banks also charge an inactivity fee for accounts with low balances and not much activity…which could certainly describe a kid's account. Be sure to stay away from them.

Make Sure You Can Meet the Required Initial Deposit

For me, it's important that our child's money and our own money doesn't mix because then it might just get eaten up by our checking account's gremlin (wait, YOUR checking account has a gremlin eating all your cash as well?).

I've been keeping a mental ledger of what should go into this account. We've received $110 in cash gifts so far from his baptism + first birthday party, so that will be our seed money.

If you don't have money sitting around to get this started, then make sure you look for savings accounts with no minimum opening requirements. That way you can still get it set into place, waiting for when that first influx of cash comes through!

Weigh High Interest Rates Versus Lessons of an In-Person Bank

Children bank accounts online will offer higher interest rates than a brick-and-mortar bank. For example, while I'm writing this Capital One's Savings Accounts offer 0.75% APY while a savings account at Chase offers only a 0.01% APY…*womp, womp*.

However, with the brick-and-mortar bank, your child will see more of the actual banking industry and how things work.

My advice? Take the convenience + much higher earnings from an online savings account, and still reap some of the brick-and-mortar lessons by considering some of these options below:

  • High Interest Rate + Teachable Money Moments: Choose an online bank with a higher interest rate, then when your child is old enough to get a job, open a checking account and show them the in's and out's of bank accounts then. You can still take them along with you for some in-person banking at your own checking account.
  • Online Banking + Paper Statements: For the Capital One Kids Savings Account, it automatically signs your child up for paperless statements. I think it's more likely your child will keep up with their savings account if they receive quarterly paper statements instead of logging in and staring at a screen, plus receiving mail as a child is just oh-so-cool. So if I were you, I'd opt for the statements to come in the mail. If there isn't an option for this, then you can periodically print them out and go over them with your child.
  • Show Them How Money is Deposited into their Savings Account: Even with an online savings account, you have to get the money there somehow. You can allow them to see the money trail by taking them with you to deposit the money into your checking account, then showing or explaining how you will then take that money and transfer it over to their savings account.

Figure Out How the Money is going to Get Deposited into their Account

Money's got to get to this new account somehow, and you'll likely want to make this step as convenient as possible so that you will go through with it − I mean, we've all got enough errands to run anyway, amiright?

A few ways to make this as convenient as possible:

  • Link Your Account with their Account: When setting up bank account for baby, link your own checking account to theirs. Then funnel the money to their account through your own (be careful that this doesn't become a two-way street and their savings slowly dwindles down over the years due to unforeseen expenses; custodial accounts are like black holes, and the money is meant to become the child's when they turn of age). So you deposit any amount they receive that is theirs, then transfer from your account to their account with a few clicks.
  • Choose a Bank that Allows ATM Deposits: Some online banks now offer deposits through local ATMs, upping the convenience for you.

As you can see, there's a few considerations to make when setting up bank account for baby (or toddler, or 10-year old). But once it's in place, you'll have a great catch-all for the cash money gifts your child receives over the years.

Of course the longer that those money gifts have to earn interest, the more money there will be for your child, so it's best to get going on this one, Mama Bear!

Best Savings Plan for Child

Now that you've got a savings account for your child…what's the best savings plan for them?

I want you to say this with me, Mama Bear:

“From this holiday and birthday onward, I will set aside 50% of each of my child's money gifts into their savings account.”

BOOM.

Making this one commitment will change the money course of your child's future.

Yes, they might whine at you.

Yes, they might have their hearts set on something to purchase in a store with that money.

Psst: I did say 50%, not 100%, for this savings plan for child. So they could certainly still spend some of the money on themselves. Otherwise this savings plan for child might fail!

But when they turn 18, and you can hand over a savings account with (potentially) several thousand dollars in it − made up of $5 here, $25 there − they're going to be über grateful that you did this for them.

Why? Because it’s textbook money for college. It’s first-apartment-deposit money. It’s car money. Wouldn’t you have loved it if YOUR parents had handed an account over to you with several thousand dollars in it before being thrust out into the real world?

8 Actual Parents Who Have Been Doing This + How Much It’s Reaped for their Kid(dos)

I started doing this kid savings plan myself – at 100% contributions of any cash gifts we receive ($110 so far! We'll likely decrease the percentage once he figures out how a store works) – starting at our little guy’s birth. But he’s only 21 months old, and I want to know how this will play out for you (and me!) over the years.

So, I found several mothers who had started doing this when their kid(dos) were very young to see how it’s turning out for them.

After posing this question in several different Facebook Groups, I found that among 8 different families, the range of savings accounts from using this method is between $850 all the way up to $20,000! In other words, from covering two semesters’ worth of college textbooks, all the way to several semesters’ actual tuition cost.

Here’s a breakdown:

  • Jill (*name changed) daughter, 11: $850 in a savings account thanks to employing this method.
  • Jane (*name changed) son, 13: “What I have done with him is every time we go and see my parents for the last several years, when my Dad gives me $50, I set it aside and put it into my son’s bank account. I take him with me when I do this. I’m custodian to his savings account, which has about $3,500 in it right now.”
  • Ryan Inman, son, 2: “Contributions from grandparents towards college has been the primary reason for opening the account. Most of it makes it to the 529, some saved here for other investments. My son turns 3 in sept and has 12k in it. Started the account a few months after he was born.”
  • Jesse M Fearon, children aged 19 months, 4, and 5: We’ve had savings accounts for them “since they were born (well, since we received their SSN numbers in the mail after they were born). It's just a simple savings account but we deposit all money in that account until they are 3, then the rule is they can keep the cash (if it's less than $10) and any checks are deposited into their savings account. We don't give our children birthday gifts, instead we deposit money into their savings accounts for their birthdays. Our children are 5, 4, and 19 months old. Our oldest has the most saved since he's been around longer, but all of our children have over a $1,000 in their accounts.”
  • Holly Porter Johnson, 6 and 8: “I've been saving my kids birthday money since they were babies. I add it to their 529's. They each have around $10,000 And they're 6 and 8?.”
  • Emma Healey, son, 5: “My 5 yr old has $2800. I bank all the gifts his grandparents send over. They live in a different country so always send cash and tell me to buy something nice for him but instead I buy him a $1 toy from the thrift store and bank the rest.”
  • Lee Huff, 2 and 6: “We started saving $100 a month in a 529 in my name for each child when we found out we were pregnant. Then we transferred the money into their names after they were born and had a SSN. Instead of birthday gifts, we ask people to contribute to their 529 instead. They're now 6 and 2 and have a combined $20,000 in their 529s.”
  • Robert Farrington, 9 months, 3: “We have two kids, one is 3 and the other is just 9 months. We've put every cash gift they've ever received into the account. My oldest, at 3, has $1,700 in their account. My younger one has $1,000. We plan to continue to save all their cash gifts this way.”

Wow. Inspiring, right? Remember that when it comes time to hand over these accounts to the kids (who won’t be kids anymore, but very young adults), they’re not going to remember that toddler-sized Elsa doll they weren't allowed to buy with their money, or the latest video game they would have conquered in a few weeks anyway. They’re going to be super grateful to have had a mother with the foresight to know their child was going to need money to start their adult life. Besides, saving money for kids could also help steer them away from a paycheck-to-paycheck mentality. Your savings plan for child starts today!

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Amanda L. Grossman is a Certified Financial Education Instructor, a 2016 Plutus Foundation Grant Recipient, and founder of Money Prodigy. Amanda's kid money work has been featured on Experian, GoBankingRates, PT Money, CA.gov, Rockstar Finance, the Houston Chronicle, and Colonial Life. Read more here.
2 replies
  1. KD
    KD says:

    My daughter took your quiz yesterday; as you are aware, it took quite a while to finish it. We haven’t received the results yet. She really wants to know her results; does it typically take longer than a day to receive them?

    Reply

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