While schools teach valuable skills, personal finance is often lacking from the curriculum. Fortunately, as a parent or guardian, it’s possible to help young people gain real-world, money-related experience. One way to do so is by allowing them to use real money in their own bank accounts.
Children and teenagers can deposit funds, watch the account grow and earn interest, and grasp the pros and cons of spending and saving money. These lessons can be helpful, but there are potential pitfalls of opening accounts and transferring money, too. With an understanding of what opening a bank account for a minor looks like, which we’ll cover below, you can manage those risks.
Learn how to open a bank account for a minor, when you should, and possible risks to watch out for.
What To Consider Before Opening a Bank Account for a Minor
Before opening a bank account for a minor, start with the big picture in mind. What are you trying to accomplish by opening an account? Would you like to help your kid understand money, accumulate assets for specific goals, spend money with plastic or electronic payments, or something else? With a specific goal, it’s easier to choose the accounts that fit best for you and your child.
For people under the age of 18, opening a bank account is challenging. The problem is that bank customers need to sign an agreement to open an account, and contracts signed by minors are complicated. State laws and corporate policies vary, but banks are often reluctant to open accounts for anybody under age 18 unless there’s also an adult on the account.
Note
If a minor plans to open an account with an adult, consider that adult’s financial knowledge, longevity, ethics, and more. Picking the right person the first time can improve the chances of success.
Types of Bank Accounts for Minors
When opening a bank account with a minor, you have many options—and which one you choose will depend on the financial goals you and the minor are trying to reach. Below are several examples of accounts that might be good fits, offering knowledge of everything from basic saving to investing.
Joint Accounts
If the goal is for the minor to use the account, say, by making deposits, withdrawals, and purchases via a debit card, a joint account might be a good choice. Bank accounts typically marketed as “bank accounts for kids” are often joint accounts, although they go by different names. Capital One’s “MONEY teen checking account,” for example, is a joint checking account available for all kids ages 8 or older.
Note
Keep in mind that each joint account owner might have ownership and complete access to the funds. So either the adult or the child could drain the account or rack up overdraft fees (unless the bank restricts what the child can do). That’s important to know if you set up a substantial account balance.
For better or worse, joint accounts may have features that keep adults informed about activity in the account. Parents can often set up text or email alerts, and they might be able to suspend access to debit cards if overspending is a concern.
If creating a joint account, be sure to ask your bank what happens when the minor reaches your state’s age of majority, or adulthood. For example, if there are restrictions on what minors can do, such as making withdrawals or transfers, those restrictions might end when they turn 18.
Custodial Accounts
Custodial accounts are accounts that an adult opens and manages for a child, enabling the adult to save and invest on the child’s behalf. Unlike joint accounts that allow children to spend money and take withdrawals, the adult is the only person with authority to manage a custodial account. However, the money belongs to the child.
Note
Depositing money into a custodial account is an irrevocable transfer to the child, and the funds must be used for the benefit of the minor.
If you put money in a custodial account, it’s critical to understand that the child becomes the account owner and can use the money for anything they want after reaching the age of majority, which is typically 18. Once the minor reaches this age, they are then the adult who can make their own decisions about money. As a result, they can spend the money on anything, whether it’s a long-term investment or a luxurious weekend getaway.
Education Accounts
In addition to basic bank accounts, several accounts are available for education costs. These accounts may have tax benefits, so they can ease the burden of paying for school. A few options include:
- 529 college savings plans: 529 college savings plans allow you to contribute to an account and spend the money tax-free on education expenses, assuming you satisfy the relevant tax laws. These include higher education costs, as well as up to $10,000 per year for K-12 tuition. Higher education can include trade schools, overseas institutions, room and board, and other costs for college or graduate school. You can make significant contributions to these accounts, making them powerful ways to save for the future.
- Coverdell Education Savings Account (ESA): This account can also help you pay for education with tax-favored dollars. However, not everybody is eligible to contribute to an ESA. Plus, the maximum annual contribution is fairly small, so you may need to start early and supplement these funds with other sources of money.
Prepaid Cards
If your primary goal is to enable payments with plastic, prepaid cards are another option. However, prepaid cards are notoriously expensive, and they don’t offer much that a checking account can’t offer. Bank accounts for teens and children might have no fees (or temporary fee waivers), so a bank account might be a better option.
Pros and Cons of Opening a Bank Account for a Minor
Pros
Hands-on experience with money
Ability to make payments and bank online
An early start to building assets
Low-cost banking options
Cons
Adult involvement often required
Can have an impact on financial aid
Rigid rules on some accounts
Pros Explained
Hands-On Experience With Money
A bank account offers young kids valuable exposure to personal-finance concepts. While you can try to explain abstract topics in real life—while on shopping trips, for example—there’s no substitute for letting the child experience everything directly. They can enjoy the satisfaction of earning interest and watching an account balance grow. When it comes to spending, they can grapple with the tradeoffs involved, and practice balancing limited resources.
Ability To Make Payments and Bank Online
If you want a child to have a debit card or set up direct deposit from a job, a bank account can provide autonomy and convenience. There’s no need to carry cash, and minors can be self-sufficient while learning to manage an account responsibly.
An Early Start To Building Assets
There are bank accounts designed for children and teens, and these can be excellent places to deposit funds for the future. As a parent or guardian, you may anticipate expenses such as education costs or expenses related to them moving out someday.
Note
Some accounts offer tax benefits or opportunities to transfer assets to loved ones while maintaining temporary control of the assets.
Low-Cost Banking Options
In general, bank accounts can have maintenance charges that eat into your savings, and minimum balance requirements that are unattainable for minors. But accounts designed for children and teens often waive those fees and allow the account owner to start with small dollar amounts.
Cons Explained
Adult Involvement Often Required
Children can taste independence with their own bank accounts, but they’re not completely on their own. An adult typically needs to open an account with a minor, and that’s often fine (and possibly even preferred). But in some cases, minors may not have a relationship with a trustworthy adult who is willing and able to help them open an account.
Note
In some cases, the adult who opens an account in the name of a child does not have to be a parent or guardian. With custodial accounts, for example, anyone—grandparents, other family members, or even friends—can open or contribute to the account.
Can Have an Impact on Financial Aid
Having assets can affect one’s ability to get financial aid, whether they’re in the child’s name or not. That’s because generally, there must be some type of demonstrated financial need to qualify for certain types of financial aid.
While that’s not a reason to avoid saving, it’s important to understand how assets can count against you so that you can budget accordingly.
Rigid Rules on Some Accounts
As you decide where to save money, consider how and when you intend to spend the funds. Some accounts have rules and restrictions that could conflict with your goals. For example, withdrawals from a 529 account might be subject to taxes and penalties if you don’t use the funds for qualified expenses. That said, there may be allowances for scholarships and other situations.
How To Open a Bank Account for a Minor
To open an account for a minor, find a bank that offers the features you value the most. Take note of any minimum deposit required to open the account, as well as ongoing balance requirements. Fees are important, as they can gradually eat away at your savings, so check to see if you’ll pay monthly account fees or other costs.
Note
As noted, accounts for minors typically require an adult on the account.
As with opening any other account, you’ll need to provide personal information to open an account. Be prepared with details about the minor and any adult on the account. Typical requirements include:
- Full name
- Social Security number or tax ID number
- Physical address
- Valid government identification details
Ask your bank about any requirements before beginning the process to ensure that things go smoothly.
To fund an account for a minor, you can often link an external bank account and move money into the account electronically. You may also be able to deposit cash and checks (including remote check deposits with an app), especially at brick-and-mortar banks and credit unions.
Important Tax and Legal Issues
Whether you use a joint account or a custodial account, it’s important to consider the tax and legal implications of each.
Talk with a local tax advisor to find out what to expect with each type of account. You might have to deal with gift taxes, “kiddie” taxes, and other complications. In addition, a local attorney can help you understand any legal pitfalls. For example, there might be pros and cons of getting money out of your estate and transferring assets to children. You might even find that a trust (or other solutions) will work better.
Note
Especially when large sums of money are involved, it’s wise to consult with professional advisors before making any financial decisions on behalf of your children.
The Bottom Line
Minors can develop valuable skills that they’ll need throughout adulthood, and getting an early start is often helpful. Plus, if appropriate, children can enjoy autonomy and convenience when they have their own accounts. It’s relatively easy to open bank accounts for minors, although banks typically require an adult on the account, which can be challenging.
Before opening and funding a bank account, it’s crucial to explore alternatives to standard bank accounts and research any pitfalls. A bank account might not be the perfect option for your goals (you might prefer a 529 for college, for example).
Frequently Asked Questions (FAQs)
When should kids get a bank account?
You can open a bank account for your child at any age—even when they're a newborn, as long as they have a Social Security number. When your child is older, it’s up to you to decide if they are mature enough to share some of the account responsibilities.
What do I need to open a bank account if I’m under age 18?
To open an account as a minor, you typically need a parent or another responsible adult as a joint account holder.
How much do I need to open a kid's bank account?
Many accounts don't require a minimum deposit, or the minimum is very small. At most banks, $25 or so should be sufficient.
