How to Pick an Online Savings Account for a Child
Posted by : Premraj | Posted on : Tuesday, August 24, 2010
DELICIOUS
SU
REDDITBack in the day, there were two places to put a child’s savings. The first was in a piggy bank at home. We had one until I broke into it and used the money to play a pinball machine at the 7-11 near our home. And the second place was a passbook savings account at our local bank.
I confess that I miss that passbook account. There was something about the teller stamping my book and watching my account balance increase that brings back fond memories. I even remember going to the bank and asking the teller to update my passbook with any interest I had earned.
My how things have changed. Today the options for a child savings account have expanded substantially, thanks in large measure to the Internet. So if you are looking to open an account for child or grandchild, here are a few factors to consider, along with my top picks for the best options.
1. Choose an online bank: While I cherish the memories of going to the local bank, the reality is that most banking in the U.S. is done online. Online banking is convenient, and it gives you instant access to your account information. As adults, our children will certainly bank online, so they might as well start early.
2. Seek a competitive interest rate: It’s important to teach children about the power of compound interest and the importance of getting a good deal. As a result, choose a high interest savings account. While the interest rate is not the only consideration, the account should offer an interest rate in the top 5% of all banks.
3. Avoid fees: There are plenty of online banks that do not charge monthly fees. Particularly for small balance accounts, it’s important to make sure the account won’t be hit with fees each month. We opened an account for our children years ago at a local bank, and they started charging the accounts a $15 monthly fee. For accounts that had just a few hundred dollars, this was totally unacceptable.
4. Be mindful of minimum balance requirements: Some banks require a minimum balance to open an account. Other banks have no minimum, but charge a monthly fee if the balance falls below a certain threshold. Unless your child’s account will have a high enough balance to avoid these fees, these banks should be avoided.
5. Consider ease of use: Not all online banks are created equal. Some are much easier to use than others. Particularly for young children, consider how easy it is to navigate the site and find the key information you need.
6. Look for flexibility: You may just want to open a savings account for your son or daughter. If that’s the case, flexibility may not be that important. For some, however, you may want to look at money market accounts, certificates of deposit, and even foreign currency accounts. If so, make sure the bank you choose offers these options.
Three Top Picks
While it’s not practical to list all possibilities, here are three top choices to consider:
Smarty Pig is an excellent choice for an online savings account for a child for several reasons. First, for accounts under $50,000, it pays the highest interest rate you can find (currently 2.15%). Second, you don’t just deposit your money, you set savings goals for the money. These savings goals provide an excellent teaching opportunity. Third, friends and family can contribute to the child’s savings goal. And finally, the concept behind the site makes saving fun, which is important for any child learning to save.
Ally Bank has several advantages going for it. First, while it’s interest rate doesn’t match Smarty Pig, it does offer some of the highest rates available from a traditional online bank. Second, it offers a wide variety of account options, including many certificates of deposit. If you are looking for more of a traditional bank, Ally is a good choice.
Finally, Discover Bank is an option that is well worth considering for one primary reason—ease of use. In addition to offering competitive rates, Discover Bank is one of the easiest sites to navigate and use.
Guest post from Dough Roller
