SMF

I'm curious what type of savings account you have for your children. I know there are many available so I'd like to see what you guys have to say. My son, a year old, already has over $200 in his piggy bank. I don't want to have a piggy bank full of cash in the house and I also don't want to be one of those parents who spends their kids money and replaces it with IOU's.

Of course we can go with a standard savings account but I'm looking for something long term and safe.

Thanks,

J

Most banks offer minimal interest on savings accounts, even those with a substantial balance. There are online options which offer decent interest rates. Two that come to mind are ING Direct (4.50% with no minimum balance) and HSBC (5.05% with no minimum balance).

Minor accounts are generally only available in a bank's lower level of savings account. For example, you cannot title a FDIC Insured Money Market Account as a minor account. Almost all banks will offer you some type of a minor savings account, but the rules governing the account may vary from state to state. My suggestion to you would be to stop in the local branches of banks in your area and ask questions about what's available. Always ask a "platform rep", the sales/service people who tend to sit behind the desks at the front of the bank. Tellers receive only minimal training in accounts, while platform reps receive both teller training and in-depth account training. Start at your bank since you may be able to find package deals and you're more likely to be working with somebody who already understands your needs at an institution where you have an established relationship. From there, see about getting some information from both the large banks and the smaller local banks in your area.

Many times you can get information from a small bank and then take it back to a larger bank for them to match the deals offered. This gives you the good deals that are available at smaller banks plus the service you would expect from a larger corporation (internet access to your accounts, 24/7 phone support, longer hours, etc.). Whenever you set up a new account, keep in mind that banks are, at their heart, businesses. Like any other business, they're all competing for your business. If you shop around, you'll find the deal you are looking for. This information provided by our business teacher.

I put money in a 529 plan for college for both of my sons. It is basically an IRA for college that you can put in your childs name. This is ofcourse assuming you are saving for school and not going to pull anything out sooner.

There are several different plans for college/savings for kids.

529 is probably the most popular. I don't have one, so I can't give you too many details about it.

Education IRA: This is different than a 529 plan. Max contribution of $2000/year. Money must go to the childs education.

UGTM (Uniform Gift to Minors Trust): Unlimited amount. But, the money becomes the childs at the release age (varies by state, but typically 18-21 yrs). This means that he can use the money for whatever he wants, college, trip to europe, new car. Could be dangerous if your child is irresponsible with money. On the otherhand, if your child decides he doesn't want to go to college, but instead pursue a career somewhere else, start a business, etc., he can use that money without penalties.

Each of these 3 plans have different tax consequences, and financial aid consequences, both for yourself and your child. In some cases, the money is considered the childs money, other cases it is considered your money.

I don't remember the specifics of each plan, but if you go to a site like Vanguard.com, you could read up on the specifics of each type of plan.

In addition to these 3 plans, there are also plain old savings accounts. Again, different implications.

You need to look at your entire investment picture to see which plan(s) work best for you and your children. In my case, we went with a combination of education IRA + the UGTM. But, everyone is different, with different financial needs, so I can't stress enough to do your homework to find out which is best for you.

You could also open a high interest savings account (ING, or whatever), in your own name, in order to get the interest, and give it to him when he is over age. If it grows into the thousands, though, you at some point run into a gift tax issue doing this. (currently $11k or so, I think). Definitely look up the UGTMA options. That might allow you to do this without having this problem. UGTMA is very like a trust in ways, with you as trustee. And then of course there are conventional trusts, which you would want to seriously consider if there was a lot of money, but not worth the expense to set up otherwise.

-Mo

Note: Nothing in the above is legal advice.

cd's would be another easy option... you would just have to renew (and hopefully add to it) it when it comes due.
i just checked and my local bank is offering 5.05% on a 12 month term.

my wife and i use these all the time when we've got some extra cash we would like to hide from ourselves.

Definitely start out by asking why a 529 wouldn't be appropriate. In some cases, it might be because your home state offers something better, and in others it might be because you might need the money in an emergency. The tax advantages are not so small, though.

I say buy a new Toggle with it. When he gets old enough to shave he will be the only one in his class with a razor that goes up in value.

OK, OK, if that won't work do what the other guys said.

With a one year old I really wouldn't worry about safety too much. I say invest it in an ETF or mutual fund or even a few DRIP plans. Long term stock investing has always trumped every other asset and your kid doesn't exactly need to be liquid

Clive

My 4 month old has had a Child Trust Fund since he was 2 months.

In the UK the government gives you £250 to invest in one when the child is born.

It's an ethical CTF (was important to SWMBO) with the Co-Operative Bank.

Schwab online has some information on 529, Educational Savings and Custodial Savings accounts, you've probably seen this already though.

Barry

You can enroll in any state's 529 program, so look around to find one that suits your needs. Another advantage of the 529 is that if your child wins a scholarship and doesn't need all the money in the 529, it reverts to you without penalty.

Regards,
Stan

MOSES wrote:You could also open a high interest savings account (ING, or whatever), in your own name, in order to get the interest, and give it to him when he is over age. If it grows into the thousands, though, you at some point run into a gift tax issue doing this. (currently $11k or so, I think). Definitely look up the UGTMA options. That might allow you to do this without having this problem. UGTMA is very like a trust in ways, with you as trustee. And then of course there are conventional trusts, which you would want to seriously consider if there was a lot of money, but not worth the expense to set up otherwise.

-Mo

Note: Nothing in the above is legal advice.

In this instance, "high interest" is more a marketing ploy than reality. The interest rate may be a bit higher than normal, but it is by no means high as they purport. One can open an account in one's child's name in this case and not worry about the rigamarole.

For small amounts like a few hundred dollars, a regular account is your best bet. Interest is insubstantive anyway for small daily accounts, as I am sure you are aware.

Take care.