Many banks have savings accounts designed especially for kids, with no minimum deposit amounts and no fees if the account falls below a certain balance. Another bonus is that it is easy to transfer money between your account and your child's account if you have an account at the same bank.
While the interest rates these days may not do much to encourage kids to save, most kids will nevertheless like the idea that their money can earn more money (even if it is just a few cents). Younger children may not understand the math behind interest or the idea of compounding just yet, but they are old enough to appreciate the fact that their money can earn a little bit of interest.
The monthly statements, passport book and any incentives the bank may offer can help get kids excited, and since most of today's kids are tech-savvy, reviewing account balances online can be fun as well. Watching their account grow over time can encourage even very young children to save and to make wise spending choices.
Introduce the idea of banks and savings account to kids: explain to your child that a bank is a safe place to keep his or her money, and that even if someone were to steal all the money in the bank, or if the bank were to go out of business, your child would not lose his or her money. You can add money to your savings account (called a deposit) and you can take money out when you need it (a withdrawal). The bank helps you keep track of your money by sending out statements that arrive in the mail or via email.
It is helpful to take your child to a bank so they can see what it looks like and see the various people who work there. One of the bank associates may be able to sit down with you and your child to discuss the various types of accounts the bank offers, including ones specifically for children. As you open the account, the associate will probably show your child the special book where he or she can record deposits and withdrawals (assure your child that you will help with the math). Most banks will allow you to open an account in your child's name but under one of your accounts; that way, you do not need to provide your child's social security number. If you set up a completely separate account, you will have to provide the social security number.
Be sure to discuss the different ways that your child can earn money to deposit in his or her savings account. For young kids, this usually includes allowances and gifts (such as birthday money). Kids might also be able to do odd jobs around the house and yard or at a neighbor's or relative's house (with supervision) to earn a little money. Finally, entrepreneurial endeavors - such as lemonade stands and arts and crafts sales - can help little ones learn valuable skills while earning some extra cash.
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