In Part 1 we discussed the ‘soft skills’ behind financial success to teach your kids. In Part 2 we went over some tactical tips including building their credit score and saving for education.
Opening a bank account for your minor child
In the US, a person must be an adult (18+) to have a bank account in only their name. However, minor children can often have their parent or guardian open a joint account with them. (Check with your state, as this apparently depends on state regulations as well as what individual banks or credit unions offer.) Opening a bank account with your child’s name on it is a great way to introduce your child to the concept of saving, interest, and later, investing. Plus, I think it helps make them feel like a responsible adult to be able to, say, walk into a bank and deposit a check from Grandma, write a check to pay for something. When they’re high school-aged teens they can move on to direct depositing their part-time job earnings and using a debit or ATM card responsibly.
So, what bank account to choose? Many banks offer accounts tailored for children and their parents. The first major decision you should make is whether you want them to open a bank that has physical branches or an online-only bank like the ones I recommend.
Physical banks for young kids
Maybe I’m old-fashioned, but even though I try never to set foot in a physical bank if I can help it, I think there’s value in teaching your children to use the expensive relic that is traditional banking. If nothing else, being comfortable in adult institutions is both fun and an important part of growing up. So, if your child is pre-high school, I recommend opening an account at a good physical bank with a local branch near you.
If you use a physical bank (still? :)), then check there first if you like them since it’ll be most convenient for you for your kid to bank where you do. Washington residents should try BECU for kids. (I hate their web technology, but they–like most credit unions– have good incentives and low fees and friendly service.) Credit unions in general are a fine choice if you need an in-person bank for no-fee, moral banking for kids and adults alike.
Nationally, Chase seems to be a more honorable Big Bank than the incompetent Bank of America and the outright-fraudulent Wells Fargo. You can open a Chase kid’s savings account when they’re 6 – 17, or a teen co-owned account when they’re 13 – 17.
Online banks for working/spending teenagers
Once your child is old enough to have more responsibility over their own spending, and especially once they’re earning their own money, you should move them along to the best kind of bank they can have, which means an all-online one with low fees, high automation, and a good interest rate on savings.
I have so many clients still using awful banks like Bank of America or Wells Fargo for the simple reason that– in their words– “it was the first bank I ever had”. Don’t let this be your child.
Ally Bank is probably my top online choice for adults, but as of writing they do not allow minors to be joint account holders.
Capital One— which I use and recommend– offers a Kid’s Savings Account as well as a Teen Checking Account that comes with a debit card. Go with them when your child is ready for direct deposit + a debit/ATM card!
What to tell your kids about banking?
Explaining how checks, deposits, and interest work are all good things to do. Additionally, talk about avoiding overdrafts (make sure your child’s account either has overdraft protection off so with auto-declines in place, or take advantage of setting up free savings transfers that many banks and credit unions offer at no cost.)
Teach them to save up for a big goal like a large purchase using allowance or other gifted funds when they’re young. When they have incomes of their own, teach them to always put aside some portion of it for their futures. When they have earned income from wages, help them open up a Roth IRA.
