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Bank Savings Accounts for Kids

January 14, 2009

By Clark Schultz | Money Rates Columnist

Millions of Americans are struggling with the reality that the 529 college savings plans that they had established for their children's higher education have lost 20% to 40% of their value in less than one year. To most parents college is not a long-term investment in which they can count on riding out an economic recession. For many parents the answer has been to supplement their pre-existing 529 plans with a bank savings account.  Opening an account at a bank, either jointly or as a custodian for their child, is empowering for a parent and can also become a valuable educational tool for parents to teach their kids about savings and money. Some of the lessons a simple bank account can illuminate to a child as young as five or six are:


(1) That interest will be paid on your money and that compounding interest increases the benefit of saving over time

(2) That deposits will be used by the bank to make loans to other people and businesses

(3) That banks hold your money and offer safety which is backed by the U.S. government


Parents can open a bank savings account online for their kids or in person at a local branch office. Online bank, ING Direct, allows parents in any state to open a joint Orange Savings account with their child with as little as $1 and earn the current rate offered of 2.50%. Other banks will offer a special deal to local banking customers.  For instance, Affinity Bank in California is offering the Affinity Bank Kids-Only Savings Account promotion paying a 10.00% APY on balances up to $500. When comparing different banks and savings accounts, parents should examine carefully any monthly balance requirements and maintenance fees that the bank discloses. In addition, parents should consider that today's environment of low interest rates has prompted many banks to offer rates below 0.5% on their savings accounts. Checking websites like Money-Rates.com and Onlinebankrewards.blogspot.com to find the very best rate deals and promotions will help your kids start out with a good savings account.


The most important part of opening a bank account for children is to allow them to have input and take the very first steps in becoming financial decision-makers.  And if your child savings account ends up outperforming your 401K or IRA for the year, they may have a good laugh at your expense.

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