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Children grow up fast—so it’s never too soon for family and friends to take steps to help them reach their greatest potential. One way to do that is by opening and funding a savings account for a minor. It’s not only an opportunity to teach them the value of saving long before they’ll ever need the money—it’s also a great way to build a strong financial foundation. Over time, money from that savings account might help them pay for college, their first car, or even their starter home.

Before you open a savings account for a minor—sometimes known as a custodial account, which you’ll manage until transferring it to the child once they’re old enough to take on the responsibility—you’ll want to understand how it works. Here’s everything you need to know.

What to look for in a savings account for a minor

Opening a savings account for a child can be as basic as opening a traditional savings account that accumulates interest over time. But not all custodial accounts are created equal—and you have an array of savings account options.

As with any financial undertaking, your priorities will determine which type of custodial savings account is right for you. If you don’t want the child to be aware of the account, you might consider opening a high-yield savings account in your own name—and then have the funds unofficially earmarked for the young person.

Another option is to open a joint savings account shared between yourself and the child’s parent—a common choice among those saving on behalf of their grandkids. For any custodial account, you’ll want to ensure that the child’s parents are aware of the account. Why? The child may receive a 1099 form at tax time, potentially requiring the interest accrued on the account to be reported to the IRS.

If you want the child involved in the savings account to improve their financial literacy, you can consider a custodial account that you control until it’s handed over when the child reaches age 18 or 21 (it varies by state). (Please note: To apply for a ߣ¹ÜÍøÕ¾^® Custodial account, you must do so over the phone. Call us at 1-866-515-5283.)

Alternatively, you can open a certificate of deposit (CD) or a money market account as a custodial account. A CD allows you to lock in an interest rate that can be even higher than that of a savings account. A money market account, meanwhile, offers you a competitive interest rate like a savings account and sometimes even a debit card for easy access to the money.

What you need to open a savings account for a minor

The first step to applying for a custodial account—such as one that grandparents might open for a grandchild—is to select the type of account you’d like to open and then contact your bank. As with any account application, you’ll need to provide personal information like your name, date of birth, address, and contact information—as well as your Taxpayer Identification Number (TIN). (Your TIN is often the same as your Social Security number.) You’ll also need to provide the child’s identifying information for a custodial account.

How to get the most out of a savings account for a minor

Want to open a savings account for a child that will have a lasting impact? The key is to make deposits on a regular basis. A savings account can grow significantly over time through compound interest—and the best way to maximize that interest is to deposit funds into the account over the years.

Another way to make a financial gift have a true legacy is to involve the child in the account as a way to teach them about money and to help them develop smart financial habits. Take time to show them how their savings are growing by reviewing the account statements together. By including them in the account, making them part of the account process will help them understand the value of saving and the financial benefits of planning ahead.

Start helping a child build their financial foundation

Opening a savings account for a child can help them get a leg up on the future—so be sure you’re doing it right. It’s important to research all your account options, make occasional deposits to maximize interest earned, and communicate early and often about ways they can responsibly manage the money once it leaves your care.

Ready to open a savings account for a minor? Call us at 1-866-515-5283. U.S.-based Banking Specialists are available Monday – Friday 8 a.m. to 10 p.m. (ET) and Saturday/Sunday 10 a.m. to 6:30 p.m. (ET) to assist you with completing your custodial account application.

Learn more about maximizing your savings with a ߣ¹ÜÍøÕ¾ high-yield online savings account.

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