If your child’s piggy bank is overflowing or you want them to start earning interest on their savings, here’s a simple thing to do: open an interest bearing savings account with them.
Our local credit union, BECU, offers a youth savings account (“Early Savers Account“) with premium rate on their first $500 in deposits, and the standard posted rate thereafter. This means our eight year old is earning 6.17% on his savings (up to $500, then 0.17% after $500).
In addition to helping him save, the bank (and not just the bank of mom and dad) is paying him interest and it helps teach important money lessons.
Money Lesson: Opening a Savings Account
As we’ve written about before, our oldest child, Little I, loves to make and save money. And while we appreciate all his entrepreneurial ideas, we’re also working to teach him that saving money is a great way to make money as well.
Here’show we turn it into a money lesson.
Each month when his statements arrive from the bank, we take a few minutes to show him:
- How much he has saved (currently $388).
- How much he’s earned in interest by keeping the money in the account ($7.75).
- What the different terms mean such as deposits, withdrawals, and dividend/interest.
- How much he would have in 5 years or 10 years if he did nothing but let it earn interest ($523 in 5 years, $706 in 10 years). Use a savings calculator like this one.
He’s earned or been gifted the money in a variety of ways – selling things, gift money, extra chores around the house, and other entrepreneurial pursuits.
It is also a great money lesson in how banking works. We visited the credit union together, had him talk to the teller to explain what we wanted to do, and he learned how to deposit money.
Rules for our Kid’s Savings Account
Our main rule is that once he deposits the money in the savings account it is there to stay. He keeps a small amount of money at home in his piggy bank, but once he gets above a $20 or so, we take a trip to the bank to deposit the money.
This hasn’t been an issue, yet, as he is such a natural saver, but I’m sure there will come a day when he’s asking to withdrawal the money to buy something bigger.
Another Idea for Earned Income
If your child is earning income, through a job or a side hustle (babysitting, lemonade stands, lawn mowing, etc.) consider opening a Roth IRA for them (example terms here). The account can be opened and managed by any adult on behalf of a minor earning income, but we recommend getting your child involved so they understand how it works.
As always, compare the fees, interest rates, and terms to see if it makes sense. There are more withdrawal restrictions than an interest-bearing savings account, but if your child’s earnings are growing, it can be a nice nest egg for college, home purchase, or retirement.
Have you opened a savings account for your little saver? Are they earning interest on their savings? What tips or questions would you add? Leave a comment below!