What makes a savings account right for a child depends on your goals and how much you plan to deposit
There is no single "best" account—the right choice depends on whether you want to teach saving habits, park money for college, or both. The main trade-off is between accounts that pay higher interest (which requires larger deposits or specific conditions) and accounts that are simple to open and use with small amounts. Most banks offer youth accounts with low or no fees, but the interest rate you earn varies widely. Some accounts lock money away until a certain age, while others let your child withdraw anytime.
Start by deciding: Are you building a habit with small regular deposits, or setting aside a lump sum for a specific goal like college? That answer narrows the field quickly.
Key Takeaways
- Youth savings accounts at traditional banks typically pay 0.01% to 0.05% interest and have no monthly fees, making them good for teaching without risk.
- High-yield savings accounts at online banks pay 4% to 5% interest but usually require a larger opening deposit and may have age restrictions.
- 529 college savings plans offer tax advantages but lock money away for education—withdrawing for other purposes triggers penalties.
- Custodial accounts (UTMA/UGMA) give your child ownership at a set age, which affects financial aid and their tax burden.
- The best account for your situation depends on the deposit amount, how long the money stays, and whether you want tax benefits.
Youth savings accounts at traditional banks
Most major banks—Chase, Bank of America, Wells Fargo, and others—offer accounts designed for children under 18. These accounts have no monthly maintenance fees, no minimum balance requirement, and come with a debit card. Interest rates are typically very low, between 0.01% and 0.05% per year, meaning a $500 deposit earns less than $3 annually.
The real value is not the interest. These accounts teach your child how to deposit, withdraw, and check a balance. Many come with parental controls so you can set spending limits or review transactions. Your child can open one at any age, though you must be present and provide identification. The account stays in your name until your child reaches the age of majority (18 or 21, depending on state), at which point it becomes theirs alone.
Use this type of account if you want a low-stakes way to introduce banking, or if you plan to deposit small amounts regularly and do not need high returns.
High-yield savings accounts for larger deposits
Online banks like Marcus, Ally, and Wealthfront offer savings accounts that pay 4% to 5% interest on balances—roughly 100 times more than a traditional bank. The catch: most require an opening deposit of $500 to $1,000, and some have age restrictions (your child must be at least 13 or 16). Interest rates change with the market, so the 5% you see today may drop to 3% next year.
These accounts have no physical branch, so deposits happen by transfer from another account or by mail. Withdrawals are also electronic. There are no debit cards and no monthly fees. If you have a lump sum—money from a relative, a birthday gift, or savings you want to grow—a high-yield account makes that money work harder while staying accessible.
The trade-off is simplicity for returns. Your child cannot walk into a branch to deposit cash, and the account requires a parent or guardian to co-own it until your child reaches the age of majority. Check the bank's website for the exact age requirement and whether they allow you to transfer ownership when your child turns 18.
529 college savings plans
A 529 plan is a tax-advantaged account specifically for education expenses. Money grows tax-free, and withdrawals for tuition, room and board, books, and computers are not taxed. Some states also offer a state income tax deduction for contributions—the amount varies by state, from $235 to $500 per year.
The downside is restriction. If your child does not go to college, or if you withdraw money for non-education purposes, you pay income tax on the earnings plus a 10% penalty. That penalty can be steep on a large balance. Some states allow you to transfer unused funds to a sibling or to roll the account into a Roth IRA (up to $35,000 lifetime), but these options have limits and conditions.
You open a 529 in your name as the account owner, and your child is the beneficiary. You control the money until your child is ready for college. If you are confident your child will attend college and want a tax break on your contributions, a 529 makes sense. If you are unsure or want flexibility, a regular savings account is safer.
Custodial accounts (UTMA and UGMA)
A custodial account is held in your child's name, with you as the custodian. When your child reaches the age of majority (18 or 21, depending on state and account type), the money becomes theirs to use however they want—college, a car, anything. You have no say once they turn that age.
Custodial accounts can hold cash, stocks, bonds, or mutual funds. The tax treatment is different from a regular savings account: your child pays tax on earnings above a certain threshold (called the "kiddie tax"), and that tax rate depends on your income. For 2024, the first $1,300 of earnings is tax-free, the next $1,300 is taxed at your child's rate, and anything above that is taxed at your rate.
Custodial accounts also affect financial aid. When your child applies for college, the account counts as their asset, which reduces aid more than if the money were in your name. If college aid is a concern, a custodial account may not be the best choice. These accounts work well if you want to set aside money for your child's future and do not need tax breaks or financial aid protection.
Comparing interest rates and fees across account types
| Account Type | Typical Interest Rate | Monthly Fee | Minimum Deposit | Best For |
|---|---|---|---|---|
| Youth savings (traditional bank) | 0.01%–0.05% | $0 | $0 | Teaching habits, small regular deposits |
| High-yield savings (online bank) | 4%–5% | $0 | $500–$1,000 | Larger lump sums, maximum returns |
| 529 college plan | Varies (invested) | $0–$50/year | $0–$500 | College savings with tax benefits |
| Custodial account | Varies (invested) | $0–$50/year | $0–$500 | Long-term savings, child ownership at 18+ |
How to decide between these options
Start with the deposit amount. If you are depositing less than $500 or adding small amounts regularly, a youth account at a traditional bank is the simplest choice. The interest rate is negligible, but so is the complexity, and your child learns to use a real bank account.
If you have $500 or more to deposit and do not need the money for college specifically, a high-yield savings account gives you the best return with no strings attached. Your child can withdraw the money anytime, and there are no tax penalties.
If college is the goal and you want a tax break, a 529 plan is worth the trade-off of being locked into education expenses. If you are unsure whether your child will go to college, or if you want flexibility, skip the 529 and use a high-yield savings account instead.
Custodial accounts make sense if you want to give your child a substantial sum that becomes theirs at 18 or 21. Be aware this affects financial aid and that your child gains full control at the age of majority.
Frequently Asked Questions
Can my child open a savings account on their own?
No. Anyone under 18 needs a parent or guardian to co-own the account. You must be present with a valid ID, and your child must provide their Social Security number. Some banks allow teens 13 and older to open accounts with parental consent online, but you still have to verify your identity first.
What happens to the account when my child turns 18?
It depends on the account type. Youth accounts at traditional banks automatically convert to adult accounts. High-yield savings and custodial accounts may require you to transfer ownership or close the account and open a new one in your child's name alone. Check with your bank about their specific process before your child's 18th birthday.
Do I pay taxes on interest my child earns?
If the account is in your name with your child as a beneficiary, you pay tax on the interest. If it is a custodial account in your child's name, they pay tax on earnings above $1,300 per year (as of 2024). A 529 plan has no tax on earnings if used for education. Ask your tax preparer which structure works best for your situation.
Will a savings account hurt my child's financial aid chances?
Yes, but the impact depends on whose name the account is in. Money in your child's name (including custodial accounts) counts as their asset and reduces aid more than money in your name. A 529 plan has a smaller impact on aid than a regular savings account. If financial aid is important, keep the account in your name until your child applies for college.
Can I move money between account types later?
Yes. You can withdraw from a high-yield savings account and deposit into a 529 plan, or close a youth account and open a custodial account. The only restriction is the 529: if you withdraw for non-education purposes, you pay tax and a 10% penalty on earnings. Plan ahead, but do not feel locked in by your first choice.