Should You Have a Savings Account for Your Child?

Most parents feel like they should open up a savings account as soon as their kids receive their first birthday or holiday check. But for most people, that’s not the best approach. Most of the time, savings account balances hover around the same amount for years, and the bank pays very little interest (the average of the top five banks ).

So, what should you do instead? Follow the steps below to determine what is right for your family.

Step 1: Get your own financial life in order.

Before you do anything, make sure you can practice what you preach. Do you have a good handle on your own finances so that you can calmly and positively discuss money with your kids?

If yes, read on. If no, get yourself organized first. Create a budget, consolidate old accounts so that you know where everything is, and have an action plan for saving for your goals.

Step 2: Decide on the intent for saving for your kids.

Is the goal to teach your children about saving and the value of money? Or do you want to start setting aside money for college? You can do both, but they involve different types of accounts.

For college savings, a traditional savings account may not cut it. You need an account with growth potential, and one of the better ways to achieve growth is tax-free through a 529 College Savings Plan. You can pick a plan in any state and use it for any qualified education expenses (think room, board, and tuition) nationwide and with a lot of international programs.

There are over 80 plans on the market, and savingforcollege.com is an excellent resource for comparing them.

To take the most advantage of growth and the power of compounding, start saving early and invest in an aggressive growth index portfolio (if offered in the plan you choose), which, while not without risk, tends to have the lowest expenses and the greatest growth potential.

If your goal is to teach your kids about money, you’ll want to actively involve them throughout the process. Rather than doing it for them when they’re toddlers, wait until they have a better grasp on the concept, and help them open an account and deposit money.

Use this as an opportunity to talk about spending and saving and your family’s typical mix (for example, spending 70%, saving 20% and giving 10%). Smart spending and living within your means is a life lesson that can be taught early.

Step 3: Pick an interest bearing savings account.

When the time is right to open an account with your child, don’t just head to the same bank you’ve always used—use a site like Bankrate to explore new options. Online banks and credit unions often offer better interest rates for savings accounts, even for minors.

Bottom line: There are great options out there, so do your research. Don’t make the mistake of sitting on $1,000 earning no interest in a savings account under your child’s name. Set an intent for the money and involve your children, or if they’re too young to be involved, you might consider closing those accounts and dumping the money in a 529 plan. You’re more likely to see it grow.

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SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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