Whereas many of your child's major milestones—such as starting solid foods and enrolling in kindergarten—come with clear timelines, knowing when to open your child's first bank account is more ambiguous . . . or is it?
While there's no hard and fast rule about opening a savings account, the earlier, the better, said Amanda Barrett, senior consumer product manager at BOK Financial®.
"Parents are their child's first and most important teacher," Barrett continued. "We can introduce spending, saving and budgeting to kids at a very young age. Opening a savings account allows your children to ask questions about money and practice their skills in a low-risk environment."
What type of savings account?
There are two common types of savings accounts for kids: custodial and joint, and your family might choose one or both. Either way, you'll need to be involved; your child cannot open their own account until they are 18 years old.
Here is a quick overview:
A custodial account is opened on behalf of a minor. Anyone, including grandparents, can open the account. The child cannot access the account until they reach majority age (typically 18 or 21, depending on the state and/or bank), at which point they become the only owner.
- Pros: You can save a large amount of money for your child.
- Cons: Your child can do whatever they want with the money as soon as they turn 18—which might not align with your intentions.
A joint savings account is a shared account. It must be opened by a parent or legal guardian over 18, and both the child and the parent can access the account through deposits and withdrawals. You can stay on the account as long as you and your child want, often beyond the college years.
- Pros: Your child will learn by actively managing the account with you.
- Cons: As a shared asset, any tax issues or garnishments you face may negatively impact your child's account. And vice versa.
Barrett suggests picking the account you need based on your family's goals. A custodial account might make the most sense if you want to save for a car or a big school trip since the money can sit and grow relatively untouched. If your child earns an allowance or receives birthday money that they'd like to spend, a joint account is likely the best option.
Tips for managing a joint checking account
As your child becomes a teenager, they might get a job or have regular expenses and need a checking account. You'll need to open this for them and be on the account, similar to a joint savings account.
Because the money comes and goes more often from a checking account, Barrett has some additional tips:
- Set up online banking alerts for low balances.
- Teach your child to set up reminders for recurring transactions to ensure there's enough money in the account.
- Get comfy with paper. Children under 13 cannot bank online, so you'll need to help them keep a paper ledger or printout of their online statement.
- Remind your child to regularly check their balance. While some youth accounts do not have overdraft fees, they can be overdrawn with a negative balance, and Barrett reminds parents that it's important to ensure both they and their child understand those details related to their account type.
Partnering with the right bank
Your kids are young now, but it's important to pick a bank that they can grow with. Barrett recommends choosing a bank with physical locations. "Going in periodically and seeing the bank makes saving money feel more tangible," she said.
Other things to look for when choosing a bank include:
- Low opening deposit requirements. Many banks, including BOK Financial and its affiliates, have a youth savings account with a $5 minimum.
- Free online and mobile banking.
- No overdraft or returned item fees for youth checking accounts.
- No monthly fee when you sign up to receive statements electronically.
What happens when my child turns 18?
If you opened a joint account with your child, you can stay on the account for as long as you and your child want. Many parents like being able to access the account and add money in a pinch, especially if your child is away at college or traveling internationally.
When the time comes, and your child craves some financial privacy, you'll need to request an account modification from the bank. Since your finances are comingled, staying alert and engaged with your child's account while you're on it is important. And Barrett reminds parents to avoid accidentally staying on your child's account into adulthood if you're unprepared to pay attention to their finances.
If you opened a custodial account, the assets transfer entirely to your child when they reach majority age (usually 18 or 21 depending on the state and/or bank).
Leading the conversation
If this all feels a little overwhelming, you might be tempted to stall. You're busy, and there are so many other things to worry about when raising kids. But if you're waiting for school to teach your children about money, you'll likely be disappointed. In a recent study of teens ages 13 to 18, 41% said they had no financial literacy classes in school. And most teens (54%) felt unprepared to finance their futures. It's up to parents to teach your children about financial planning, Barrett said.
She also suggests keeping money talks light, at least in front of your kids. "If your family conversations around money are high-stress and intense, that anxiety will rub off on your child. It's about intentionality—kids are more likely to engage in financial topics if it's fun."
Giving your children the tools to manage their finances and have a healthy relationship with money can set them up for success and save them stress down the road, she said.