Key Takeaways
- Most banks allow custodial accounts for children of any age — you manage it until they reach 18 or 21
- Kid-specific accounts from banks like Capital One, Alliant, and Greenlight often have no fees and no minimums
- Children who have savings accounts are 6 times more likely to attend college according to Washington University research
- Match your child's deposits (like an employer 401k match) to teach the concept of earning on savings
- Let kids make age-appropriate decisions about their money — autonomy builds financial confidence
Custodial accounts (UTMA/UGMA)
Custodial accounts (UTMA/UGMA): The parent or guardian opens and manages the account on behalf of the child. The child is the legal owner of the funds, but the custodian controls the account until the child reaches the age of majority (18 or 21 depending on the state). These are the most common accounts for young children.
Joint savings accounts: The parent and child are both account holders. Both have access to the funds. This works well for older children and teens learning to manage their own banking.
Youth savings accounts: Special accounts designed for children, offered by many banks and credit unions. They typically have no monthly fees, no minimum balance, low or no minimum deposit to open, and sometimes offer above-average interest rates as an incentive.
529 education savings accounts: Tax-advantaged accounts specifically for education expenses. The money grows tax-free and withdrawals for qualified education costs are tax-free. Best used alongside a regular savings account since 529 funds are restricted to education.
No monthly fees
No monthly fees: Fees that eat into a child's small balance are discouraging and teach the wrong lesson. Many banks waive fees for youth accounts.
No minimum balance: Children often start with very small amounts. An account that requires $100 or $500 minimum is impractical for a 7-year-old's birthday money.
Competitive interest rate: Online banks and credit unions often pay 3-5% APY on youth savings, compared to 0.01-0.05% at major banks. The higher rate makes the concept of earning interest more tangible and exciting for kids.
Digital access: Older children benefit from a mobile app or online banking access where they can check their balance and see deposits. Some banks offer kid-friendly interfaces designed for younger users.
Parental controls: For teens with debit card access, look for spending controls, transaction alerts, and the ability to set limits.
Ages 3-5 (Introduction)
Ages 3-5 (Introduction): Use a clear jar so they can see money accumulate. Explain that saving means keeping money for later. Let them put coins and small bills in the jar and count them periodically.
Ages 6-9 (First account): Open a savings account and take them to the bank (or show them the online account) to make deposits. Set a savings goal for something they want — a toy, game, or experience. Show them the interest earned each month, even if it is just cents.
Ages 10-13 (Growing responsibility): Give them an allowance and require a portion (25-50%) to go into savings. Introduce the concept of earning interest and compound growth. Let them make small spending decisions with their own money, including mistakes.
Ages 14-17 (Real-world prep): Open a joint checking account with a debit card. Teach budgeting with real income from part-time jobs. Introduce the concept of investing (a custodial brokerage account with index funds). Discuss college costs and financial planning.
How it works
One of the most powerful teaching tools is matching your child's savings contributions, similar to how an employer matches 401(k) contributions.
How it works: For every dollar your child saves from allowance, birthday money, or earnings, you match it with 50 cents or a dollar. This teaches the concept of incentivized saving and makes the account grow noticeably faster.
Set clear rules: Match only money the child earns or chooses to save (not gifts you already gave them). Set a maximum match amount per month to keep it manageable. Review the match together so they understand where the extra money comes from.
Gradual reduction: As children get older and earn more, reduce the match percentage. This mirrors real-world employer matches and teaches them to save on their own initiative.
Making it too abstract
Making it too abstract: Young children need concrete examples. Showing them a bank statement with numbers means little. A clear savings jar, a printed bar chart of their account growth, or a visual goal tracker makes saving tangible.
Not letting them spend: If children can never spend their money, saving feels like punishment. Let them use some savings for things they want. The experience of choosing between spending now and saving for something bigger is the actual lesson.
Bailing them out: When your child spends their money and regrets it, resist the urge to replace it. Experiencing the natural consequence of a spending decision is one of the most valuable financial lessons.
Waiting too long to start: Children understand the basic concept of more versus less by age 3 and can grasp saving by age 5-6. Starting early normalizes financial discussions and builds habits before peer pressure and marketing make spending more tempting.
Kiddie tax
Kiddie tax: Interest earned in a custodial account belongs to the child for tax purposes. The first $1,300 of unearned income (interest, dividends) is tax-free. The next $1,300 is taxed at the child's rate. Above $2,600, it is taxed at the parent's rate. For most children's savings accounts, interest will be well below the tax-free threshold.
UGMA/UTMA ownership: Money in custodial accounts legally belongs to the child. Once deposited, it cannot be taken back by the parent. When the child reaches 18 or 21, they gain full control — including the right to spend it all. Consider this when deciding how much to put in a custodial account versus a 529 or your own account earmarked for the child.
Financial aid impact: Assets in a child's name (UGMA/UTMA) are assessed at 20% for financial aid purposes, compared to 5.64% for parent-owned assets. For families expecting to apply for financial aid, keeping larger savings in parent-owned accounts or 529 plans is often more advantageous.
| Account Type | Who Controls It | Best Ages | Tax Treatment |
|---|---|---|---|
| Custodial Savings (UTMA/UGMA) | Parent until child is 18/21 | Any age | Kiddie tax rules apply |
| Joint Savings | Both parent and child | Teens 13+ | Reported on parent's return |
| Youth Savings | Parent (custodian) | Any age | Kiddie tax rules apply |
| 529 Plan | Parent (account owner) | Any age | Tax-free for education |
| Custodial Brokerage | Parent until 18/21 | Teens interested in investing | Kiddie tax rules apply |
Our Methodology
Account features reflect offerings from major banks and credit unions in 2026. The college attendance statistic is from Washington University in St. Louis Center for Social Development research. Kiddie tax thresholds reflect 2025 IRS guidelines. Financial aid assessment rates follow FAFSA methodology. Age-appropriate financial literacy milestones are based on research from the Consumer Financial Protection Bureau and Jump$tart Coalition.
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