Bank accounts for children create money-smart kids.
Children who learn the benefits of saving money, and the wonders of compounding interest, are likely to grow into financially savvy adults. A kid’s bank account for your son or daughter gives your children money skills they will never outgrow.
Your local bank may offer a kids’ bank account, and these banks often waive fees and deposit minimums for small depositors under age 18. Financial institutions have to make profit, however, and their is little incentive to welcome little bank customers.
Non-profit credit unions, on the other hand, are cooperative membership organizations that serve their members and communities rather than focus on profits. Many credit unions offer kids’ bank accounts that require small initial deposits and low minimum balances.
The Moola Moose Account at First Northern Credit Union in Illinois offers kids through age 12 a place to bank their allowance and money gifts. Moola Moose members get a membership card, a birthday card from Moola himself (or is it herself?) and automatic entry in quarterly drawings for prizes. The young saver also earns the same interest rate as standard savings accounts. Here’s where it gets less attractive: in mid-July 2007, the owner of a savings account with a low balance at First Northern earned an interest rate of 1 percent APY. What youngster is going to get excited about a few pennies a year in return for tucking away cash?
For a real saving incentive, enter the Bank of Mom and Dad. Parents can offer their kids incentives and interest rates that would make smoke come out of Alan Greenspan’s ears. If your kid gets an allowance of $12 a month, for example, encourage her to save by giving her an extra 20 percent of her accrued money each month. If she saves it all the first month, she’ll get an extra $2.40. Resisting the urge to spend any of the loot the second month garners her an extra $5.28. This will get expensive over time, but this high rate of return drives home the wonders of compounding interest. An added benefit: fewer frivolous purchases by your young money manager. Mom and Dad can scale back the interest rate as the child ages and her maturity grows.
Parents who have tapped out the Bank of Mom and Dad and want a real bank account for their kid that earns respectable interest can open an online savings account. The Orange Savings Account at ING DIRECT requires no minimum balance, no fees and no service charges. Since you need a checking account to open this and many other online accounts, parents can open the account in their name, making sure all savings and interest accrued goes to their child. In mid-summer 2007, the ING DIRECT Orange Savings Account posted 4.5 percent annual percentage yield.
Start early teaching kids saving skills. A bank account—whether bricks and mortar, virtual or parentally controlled—will set the right foundation.
