Monday, November 11, 2013

Kids' Savings Accounts

I think we can all agree that while the piggy bank is great at teaching the principle of saving, it's not so great at teaching the principle of interest. So where's a good place for little ones (or not-so-little little ones) to stash their cash and learn to how interest works?

You can have your kids "bank" their money with you, or with a commercial bank. And I think the ideal solution is to do a combination of the two.

1. The "Family Bank." The great thing about the family bank is you can offer a really great rate of interest (like 10 percent), that will show kids how it pays to save your money.
You don't want your kids to drive you to the poor house, though (especially if they're business-minded and older), so put a cap on the balance they can maintain in the family bank. (Though certainly they can save more in commercial banks if they choose.) Seeing a somewhat sizeable return on their savings will really teach the principle of time value of money, and that they want to be people who earn interest, rather than pay it.

I made a quick Excel spreadsheet for you to calculate interest on since I can see how that could be annoying. Let me know if you have any problems with it or questions about it in the comments below.

2. A "Real Bank." There is just something so empowering and grown-up feeling about having a real savings account. CapitalOne360 even offers savings accounts like these that are specifically geared towards children. But interest rates are so low these days that I think it would be helpful to use a family bank as the primary one so that your kids can really get the concept of how earning interest is a great thing. If this were say, 2006, before the economy took a nose dive, then I would be more enthused about using commercial banks as the primary bank for your kids. I signed up for an ING online savings account (now CapitalOne360) in 2006 and was earning 4 percent interest. That's enough to really hit home that your money is working for you. Now I think my interest rate has dropped to about .75 percent-- which is fairly depressing and makes you feel like you might as well just put your money under your mattress.

Share-- Where do your children "bank" their money?


  1. I never would have thought of a family bank to pay more interest, but that's a great idea. Thanks!

    Let's keep our fingers crossed at least one of your kids ends up with a healthy love of spreadsheets, so you can pass that along. :)

  2. My grandmother has begun giving my baby gifts of money (totaling a few hundred dollars a year) and I am trying to figure out the best place to put it. 0.01% APY from a savings account seems pretty pointless. Does a 529 savings plan make more sense? At this point my husband and I are not able to regularly contribute additional money each month.

    1. I agree. If you're planning on (for sure) setting that money aside for college anyway, 529 plans are a great way to see that money actually grow. Check out our post on 529 plans for more information. Thanks for the comment!


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