Every parent wants their child to grow, and here is one great and easy way to achieve it. Can I open a bank account for my baby?
Teaching them about money when they are young by opening a savings account is a great way to help them grow up and become financially responsible. There is no better way to know the money than a trust account.
Trust accounts can be Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts. According to UTMA, any type of property, whether real or personal, tangible or intangible, can be transferred to a trustee for a minor in accordance with the social security administration. The UGMA account only allows for cash gifts or securities.
Bank account options for minors include:
- Savings accounts. Thanks to the traditional savings account, the minor will be able to add and withdraw funds before the age of 18. This can be a great way to teach children to save on special purchases.
- Fiduciary accounts (UGMA or UTMA). With a trust account, your child will not be able to withdraw funds until they reach the age of majority – in most states, they are 18 or 21 years old. This is a great way to help them start their adult lives thanks to financial acceleration.
- CDs. Certificates of deposit can be given to a child if you act as account guardian. They usually earn higher interest rates than savings accounts, and a guaranteed rate means that you know exactly how much your gift will be worth when it matures. They will have to wait until they reach the age of majority before they can access the funds.
- University savings accounts. These plans, also known as the 529 plan, are sponsored by states, state agencies and educational institutions, and allow you to spend money on your child’s future education. There are two different types:
- Prepaid tuition plans. This account allows you to purchase credits at participating universities that your child can use when they go to college. But if you decide to go to another university, you may notice a much lower return on investment.
- Savings plans for education. This account allows you to save on all college expenses, including tuition, accommodation and meals, as well as fees. It can be used in almost every American college and some international schools, making it a more flexible option.
Creating an account
Children under the age of 18 cannot legally sign documents, so you must open an account with your name. When the child reaches the appropriate age (18 or 13 years old, if you change it to a checking account), you can go to the bank and delete your name.
Although your child is still a minor, you will have control over the account. You will be able to make withdrawals, deposits or close it if necessary.
Most banks have no problem placing the child’s name on the account if the parent is also listed on the account. But the institution will want to confirm legal responsibility for the child. You should plan to show your child’s birth certificate, and you will need both social security numbers to open your account.
Having a plan and specific goals is just as important for adults as for children. By helping children develop savings and spending plans, you can find ways to improve or clarify your own (or start one of them – “do what I say, not how I do” doesn’t work for long). In addition, well-organized, especially with regard to financial information, will remove many fears that keep people from investing in later life – especially the misconception that this is too complicated.