Opening a Savings Account for Your Child
The first step is to actually open a savings account for your child. Here you have two options: local banks and online banks. Ideally, choose an option that allows for both; many local financial institutions offer online account management.
Take the time to carefully compare online savings account options. This includes the APY or annual percentage yield. The higher the APY, the more the child will earn on their balance. Ensure that you choose an account without fees. Pay close attention to minimum balance requirements as well since you can be penalised for not maintaining this amount.
Next, choose a director for the account. Banks require a director for the account until the child is of age, which can be as early as 12 years of age or as old as 25 years. The director makes the decisions and acts as the account holder until the child is of age. At this point, all rights transfer to the child. Ensure that the child is with you when you open the account. This lets you show them exactly how the account works. Prepare all the necessary information as required by the bank and make an initial deposit. Some banks require a deposit slip while others simply require a transfer or cash deposit. Most children's accounts can be opened with as little as £5.
Advantages of Online Savings Accounts
While the traditional bank allows for a fun field trip, an online savings account lets your child see their savings grow in size whenever they desire. With an online bank, there are no business hours to adhere to and depositing money is simple. Without the higher costs of a brick and mortar facility, the APY is often higher and the minimum balance is lower. It is also easy to set up regular deposits without the need to visit a physical location. This ensures that the balance continues to build outside of its interest alone. You will also never have to worry about the location closing down or moving. Children love seeing results in real-time versus waiting for regular statements.
Building a Balance for Your Child
Since your child does not have a job, you may wonder how to build the balance. There are several options available for building an online savings account balance. For babies, consider depositing all monetary gifts into the account. For children old enough to earn an allowance, teach the concept of budgeting and saving by placing a set amount of their allowance into the account. You can also deposit a set amount of your own money each week or month. Ask family members to contribute a small amount for holidays in addition to, or in lieu of, a gift so that everyone helps the balance to grow.