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Quick Answer
The best savings accounts for kids are custodial savings accounts and 529 plans, available at most banks and credit unions. Top high-yield options currently offer up to 5.00% APY. Opening an account early maximizes compound interest, even small monthly deposits can grow into thousands by adulthood.
Savings accounts for kids are bank or credit union accounts held in a parent or guardian’s name on behalf of a minor, designed to build early financial habits while earning interest. According to FDIC data, deposits in these accounts are insured up to $250,000 per depositor, per institution, giving families full protection on every dollar saved.
Four account structures serve children best: custodial UGMA/UTMA accounts, 529 education plans, joint youth savings accounts, and custodial Roth IRAs for teens with earned income. Each carries different tax treatment, contribution rules, and access restrictions. The right choice depends on whether the goal is general savings, college funding, or early retirement investing.
Rates at online banks and credit unions have held meaningfully above the national average. That gap matters more than most parents realize once compounding has years to work.
Key Takeaways
- High-yield youth savings accounts currently offer up to 5.00% APY, more than ten times the national average of 0.45% APY reported by the FDIC for Q4 2024.
- Deposits at FDIC-member banks are insured up to $250,000 per depositor, per institution, regardless of the account holder’s age, per FDIC deposit insurance rules.
- Under 2025 IRS Kiddie Tax rules, children owe no federal tax on unearned income below $1,300 annually; income above $2,600 is taxed at the parent’s marginal rate, per IRS Topic No. 553.
- A teen with earned income can contribute up to $7,000 to a custodial Roth IRA in 2025, with all growth compounding tax-free for decades, per IRS Roth IRA guidelines.
- The CFPB identifies automatic transfers as the single most effective strategy for eliminating savings friction and building consistent family saving habits.
- Starting deposits at age 5 rather than age 10 can nearly double the ending balance by age 18, assuming consistent monthly contributions at a 4.75% APY.
What Types of Savings Accounts for Kids Are Available?
Four primary account types are designed for minors, each with distinct tax rules, contribution limits, and access restrictions. Choosing the right structure depends on your goal: general savings, college funding, or long-term investing.
Custodial Savings Accounts (UGMA/UTMA)
A custodial account under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) lets a parent or guardian manage assets until the child reaches the age of majority, which is 18 or 21 depending on the state. There are no contribution limits and no restrictions on how the funds are used once the child takes control. The trade-off is that assets are considered the child’s property and can affect financial aid eligibility under the FAFSA formula.
529 Education Savings Plans
A 529 plan is a tax-advantaged account specifically for education expenses, administered at the state level and overseen by the U.S. Securities and Exchange Commission. Contributions grow tax-free, and withdrawals for qualified education expenses are federally tax-exempt. As of 2024, the average 529 account balance reached $27,741 according to the College Savings Plans Network.
Minor Savings Accounts at Banks and Credit Unions
Traditional minor savings accounts, sometimes called youth savings accounts, are joint accounts co-owned by a parent. These are the easiest to open, often require as little as $0 to $25 to start, and teach basic deposit habits. Many credit unions, including Alliant Credit Union and Navy Federal Credit Union, waive fees entirely for minors.
Custodial Roth IRAs for Teens
Any teenager with earned income from a job, freelance work, or self-employment qualifies to contribute to a custodial Roth IRA. The IRS caps contributions at the lesser of earned income or $7,000 for 2025. Unlike a standard savings account, every dollar grows inside a Roth completely free of federal tax, and qualified withdrawals in retirement are also tax-free. The combination of a long time horizon and tax-free compounding makes this one of the most consequential accounts a working teenager can open.
Key Takeaway: Four account types serve kids best: custodial (UGMA/UTMA), 529 plans, youth savings, and Roth IRAs for teens. The right choice depends on whether the goal is general savings, college funding, or early retirement investing, and each carries different tax treatment and contribution rules.
What Are the Best Savings Rates for Kids’ Accounts Right Now?
The best savings accounts for kids currently offer APYs between 4.50% and 5.00%, significantly above the national average savings rate of 0.45% APY reported by the FDIC for Q4 2024. Online banks and credit unions consistently lead on rates for youth accounts.
Parents shopping for the highest yield should compare our best high-yield savings accounts for 2026, many of which allow joint or custodial configurations. Rate environments shift with Federal Reserve policy, so pairing a liquid savings account with a certificate of deposit (CD) ladder can protect long-term returns. That strategy is explained in full in our guide to building a CD ladder.
| Account Type | Typical APY | Min. Opening Deposit | Best For |
|---|---|---|---|
| High-Yield Youth Savings | 4.50%–5.00% | $0–$25 | General savings habit-building |
| Traditional Bank Youth Savings | 0.01%–0.10% | $0–$100 | Branch access and familiarity |
| 529 Plan (invested) | Market-linked | $0–$50 | College funding, tax-free growth |
| Custodial UGMA/UTMA | 4.00%–5.00% (savings sweep) | $0–$500 | Flexible, no use restrictions |
| Custodial Roth IRA (teen) | Market-linked | $0–$1,000 | Long-term tax-free retirement growth |
Key Takeaway: The national average savings APY sits at just 0.45% per the FDIC, but high-yield youth accounts offer up to 5.00% APY, more than 10 times higher. Choosing an online bank or credit union over a traditional branch account can make a meaningful difference in long-term balance growth.
How Do You Compare Youth Savings Accounts Effectively?
APY is the most important number to compare, but it is not the only one. A high rate loses its value quickly if the account charges monthly maintenance fees, requires a minimum balance the family cannot consistently maintain, or imposes withdrawal limits that make access inconvenient.
Fees and Minimums
Many online banks and credit unions waive monthly fees entirely for minor accounts. Traditional branch banks are more variable. A $5 monthly fee on an account earning 0.05% APY does not just reduce returns; it actively erodes the balance. Before opening any account, confirm whether fees are waived for minors specifically, or only while the account is linked to a parent’s primary checking account.
Minimum balance requirements deserve the same scrutiny. Some accounts advertise a $0 opening deposit but require a $300 average daily balance to avoid fees. For families starting with small contributions, that threshold can be a problem in the early months.
Mobile Access and Parental Controls
Practical usability matters, especially as children get older and start to engage with their own accounts. Several youth-focused accounts, including those offered by credit unions like Alliant, provide a companion app experience where parents can monitor balances, approve transactions, and set savings goals alongside their child. This visibility is valuable both for oversight and for teaching financial habits in real time.
Rate Stability vs. Promotional Rates
Some high-yield accounts advertise their top APY as an introductory rate that adjusts after three to six months. Others maintain competitive rates as a standard offering. For a child’s account intended to compound over years, a consistently competitive rate is generally more valuable than a promotional spike. Reading the account terms for language like “introductory,” “limited-time,” or “may change at any time” before committing is worth the extra few minutes.
How Does Compound Interest Work for a Child’s Savings Account?
Compound interest earns returns on both the original deposit and previously accumulated interest, and time is its most powerful amplifier. A child who starts saving at age 5 has a 13-year head start over a teenager who starts at 18, and that gap compounds dramatically.
Consider a straightforward example: depositing $50 per month into a high-yield account earning 4.75% APY starting at age 5. By age 18, that account would hold approximately $12,800, with contributed principal of $7,800 and roughly $5,000 in interest alone. Starting the same plan at age 10 reduces the ending balance to approximately $7,600. Five fewer years cuts the outcome nearly in half.
The math on a Roth IRA is even more striking over a longer horizon. Money contributed at age 16 in a custodial Roth IRA has over 50 years to compound without any federal tax on gains. The IRS allows Roth IRA contributions equal to the child’s earned income up to the annual limit of $7,000 in 2025. For a deeper look at how Roth accounts work, see our comparison of Roth IRA vs. Traditional IRA.
One aspect parents often overlook is compounding frequency. Savings accounts that compound daily rather than monthly produce slightly higher effective yields at the same stated APY. The difference is modest on small balances, but it accumulates meaningfully over a decade or more. Confirming the compounding schedule is a reasonable question to ask before opening an account.
Key Takeaway: Starting a child’s savings account at age 5 instead of 10 can nearly double the ending balance by age 18, assuming consistent monthly deposits and a 4.75% APY. Early action on Roth IRA contributions for teens with earned income extends that compounding runway by decades.
How Do You Open a Savings Account for a Child?
Opening savings accounts for kids is straightforward. Most banks and credit unions allow a parent or legal guardian to open a joint or custodial account online in under 15 minutes. Here is what the process typically requires.
Documents You Will Need
- Parent or guardian’s government-issued photo ID
- Child’s Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN)
- Child’s date of birth and legal name
- Initial deposit amount (often $0 to $25 at online banks)
Steps to Open the Account
- Compare APYs and fee structures at online banks, credit unions, and traditional banks.
- Choose the account type: joint youth savings, custodial UGMA/UTMA, or 529 plan.
- Complete the application with both the parent’s and child’s information.
- Fund the account via ACH transfer, check, or cash deposit.
- Set up automatic recurring transfers to build the savings habit consistently.
Automating deposits is the single most effective behavioral strategy. According to the Consumer Financial Protection Bureau (CFPB), automatic transfers remove the friction that causes most families to delay saving. Even $25 per month adds up to $300 per year, and with compound interest, considerably more over a decade.
Building this habit pairs well with teaching broader budgeting skills. Our guide on how to create a monthly budget can help parents model the behavior at home, making the savings account part of a larger, visible financial routine rather than something that runs silently in the background.
Key Takeaway: Most savings accounts for kids require only a child’s Social Security number and a parent’s ID to open, and many online banks allow $0 minimum deposits. The CFPB recommends automating transfers immediately to eliminate savings friction and build consistent habits from day one.
How Do You Use a Savings Account to Teach Kids About Money?
An account that sits unexamined in a parent’s name teaches very little. The real value of opening a savings account for a child comes from making it part of an ongoing, age-appropriate conversation about money.
For Young Children (Ages 5 to 10)
At this age, the goal is simple: make saving feel concrete and rewarding. Showing a child their account balance on a phone screen, explaining that the number went up since last month because of interest, and letting them choose a savings goal (a toy, a game, a trip) gives the account meaning. The mechanics of APY do not need to be explained. The idea that money grows when left alone is enough.
Some families use a three-jar approach alongside the bank account: one jar for spending, one for saving, and one for giving. The bank account holds the “long-term” portion, reinforcing that the money they deposit is separate from everyday spending money. This separation is a foundational concept that carries forward into adult financial behavior.
For Preteens (Ages 10 to 13)
Children this age can understand percentages and basic math well enough to grasp what APY means in practice. Showing them how to calculate one year of interest on their balance, even roughly, makes the concept real. Comparing what a 4.75% account earns versus a 0.05% account on the same balance is a lesson that sticks.
This is also a good time to introduce the idea of a savings goal with a deadline. Saving $300 over six months for something specific requires budgeting, which is the next skill in the sequence. Our guide on how to create a monthly budget walks through the process in straightforward terms that older children can follow alongside their parents.
For Teenagers (Ages 14 and Up)
Teenagers with part-time jobs are ready for a more sophisticated conversation. At this stage, opening a custodial Roth IRA alongside a youth savings account introduces the concept of accounts with different purposes and time horizons. The savings account is for near-term goals; the Roth is for retirement, 40 or more years away. Understanding why you would hold both simultaneously is genuine financial literacy.
Tax implications are also worth introducing at this stage. A teenager whose savings account earns $400 in interest annually is below the Kiddie Tax threshold and owes nothing in federal tax. Knowing that, and understanding what the threshold is, builds the foundation for responsible tax awareness in adulthood.
What Are the Tax Rules for Kids’ Savings Accounts?
Interest earned in a child’s savings account is taxable, and the Kiddie Tax rules set by the IRS determine how it is taxed. For 2025, a child’s unearned income (including savings account interest) under $1,300 is tax-free. The next $1,300 is taxed at the child’s rate, and income above $2,600 is taxed at the parent’s marginal rate.
This means most children with modest savings balances owe little or no tax. A child earning $500 in interest from a high-yield account at 5.00% APY has a balance of roughly $10,000, well within the tax-free threshold. For accounts that hold significantly more, parents should consult a tax professional or review IRS Topic No. 553 on the Kiddie Tax for detailed guidance.
529 plans sidestep the Kiddie Tax entirely. Contributions grow tax-deferred and qualified withdrawals are federally tax-free. UGMA/UTMA accounts, by contrast, generate taxable events and the assets become the child’s irrevocable property. For families focused on maximizing tax efficiency as account balances grow, understanding how rising interest rates affect savings yields is also relevant. Our primer on what happens to savings when the prime rate rises explains the mechanics clearly.
Reporting Interest Income for a Child
If a child’s total unearned income exceeds $1,300 for the year, it generally must be reported. Parents can sometimes include a child’s investment income on their own tax return using IRS Form 8814, rather than filing a separate return for the child, provided the income is below a certain threshold. Whether that is the right approach depends on the parent’s marginal rate and the child’s total income. A tax professional can clarify which method produces the lower combined tax bill.
One practical note: banks and credit unions will issue a 1099-INT for any account that earns $10 or more in interest during the year. Even if no tax is ultimately owed, that form should be retained for recordkeeping purposes.
Key Takeaway: Under 2025 IRS Kiddie Tax rules, children owe no federal tax on unearned income below $1,300 annually. Income above $2,600 is taxed at the parent’s rate, making 529 plans the most tax-efficient vehicle for families with large balances or active investment growth.
UGMA/UTMA vs. 529 Plans: Which Is the Right Choice?
Both account types offer tax advantages and long time horizons, but the differences between them are significant enough that picking the wrong one for your situation carries real costs.
A 529 plan is purpose-built for education. Every dollar in a 529 grows tax-deferred, and withdrawals for qualified expenses (tuition, fees, books, room and board at eligible institutions) are federally tax-free. If the intended beneficiary does not attend college, the account can be transferred to another family member or, as of 2024, rolled over into a Roth IRA for the beneficiary, subject to conditions. The restriction on non-qualified withdrawals, which carry both income tax and a 10% penalty on earnings, is the main trade-off.
UGMA/UTMA accounts carry no such restriction. Once the child reaches the age of majority, the money is theirs to use for any purpose, from college tuition to a car to a business. That flexibility is genuinely valuable. The counterpoint is that UGMA/UTMA assets count against the student in financial aid calculations at a higher rate than 529 assets held by a parent, which can reduce need-based aid eligibility more substantially.
For most families with a clear college funding goal, the 529 is the stronger choice. For families who want to give a child real financial assets without restrictions, UGMA/UTMA accounts are the more appropriate structure. Some families hold both: a 529 for education savings and a UGMA account for general long-term gifting.
Frequently Asked Questions
What is the best savings account for a child under 10?
A high-yield joint youth savings account at an online bank or credit union is the best starting point for children under 10. Look for accounts with no monthly fees, no minimum balance requirements, and APYs above 4.00%. Alliant Credit Union and Marcus by Goldman Sachs are well-regarded options.
Can a child have a savings account without a parent?
No. Minors cannot legally enter into financial contracts, so all savings accounts for kids must be co-owned or custodially managed by a parent or legal guardian. The adult remains the account custodian until the child reaches the age of majority, which is 18 in most states and 21 in a few.
How much should I put in my child’s savings account each month?
Even $25 to $50 per month is meaningful when started early. A consistent $50 monthly deposit at 4.75% APY started at birth reaches approximately $17,400 by age 18. The exact amount matters less than consistency; automating transfers removes the decision entirely.
What is the Kiddie Tax and does it apply to my child’s savings account?
The Kiddie Tax is an IRS rule that taxes a dependent child’s unearned income, including savings account interest, above $2,600 (the 2025 threshold) at the parent’s marginal tax rate. For most children with modest savings, interest income stays well below this threshold and is effectively tax-free.
Are savings accounts for kids FDIC insured?
Yes. Savings accounts at FDIC-member banks are insured up to $250,000 per depositor, per institution, regardless of the account holder’s age. Accounts at federally insured credit unions carry the same protection through the National Credit Union Administration (NCUA). Always verify the institution’s insurance status before opening an account.
Can my teenager open a Roth IRA instead of a savings account?
Yes. A teenager with earned income from a job, freelance work, or self-employment can contribute to a custodial Roth IRA up to the lesser of their earned income or $7,000 in 2025. A Roth IRA offers tax-free growth and is one of the most powerful long-term tools available. See our full breakdown of IRA contribution limits for 2026 for eligibility details.
Does opening a custodial account affect college financial aid?
It can. Assets held in a UGMA/UTMA account are reported as the student’s assets on the FAFSA and assessed at up to 20% in the Expected Family Contribution formula, compared to 5.64% for parent-owned assets like 529 plans. Families with significant custodial balances should factor this into their aid strategy when the child enters high school.
