Opening a Bank Account for a Minor

Quick answer

• Open a joint account with a parent or guardian, or a custodial account (UGMA/UTMA).
• Choose an account with low or no fees, especially monthly maintenance fees.
• Look for accounts with features that encourage saving, like a simple interface or small rewards.
• Understand the difference between joint and custodial accounts and their implications for control and ownership.
• Teach your child about the account and responsible money management from the start.
• Keep an eye on account activity and statements to ensure security and accuracy.

Who this is for

• Parents or guardians looking to teach children about financial responsibility.
• Grandparents or other relatives wanting to gift money to a child’s future.
• Individuals who want to start saving for a child’s long-term goals, like education.

What to check first (before you act)

Your Goal and Timeline

What to do: Define why you’re opening this account. Is it for short-term savings (like for a bicycle), long-term goals (like college), or to teach general financial literacy? Your goal will influence the type of account and the features you need.
What “good” looks like: You have a clear purpose for the account and a general idea of how long the funds will be held.
Common mistake: Not having a clear goal. This can lead to choosing the wrong account type or not making the most of its features.

Current Cash Flow and Budget

What to do: Understand how much money you can comfortably deposit into the account regularly or as a lump sum. This helps you select an account that aligns with your financial capacity.
What “good” looks like: You know how much you can afford to contribute without straining your own finances.
Common mistake: Overcommitting to regular deposits that become difficult to maintain, leading to account neglect or stress.

Emergency Fund or Safety Buffer

What to do: Ensure your own personal emergency fund is adequately funded before dedicating significant amounts to a minor’s account.
What “good” looks like: You have 3-6 months of living expenses saved in an easily accessible account.
Common mistake: Prioritizing a child’s savings over your own financial security, leaving you vulnerable to unexpected expenses.

Debt and Interest Rates

What to do: Evaluate your own outstanding debts, especially high-interest ones. It’s generally more financially prudent to pay down high-interest debt before focusing on savings for a minor.
What “good” looks like: High-interest debt is managed or paid off, freeing up funds for savings without incurring significant interest charges.
Common mistake: Accumulating high-interest debt while putting money into a low-yield savings account for a minor.

Credit Impact

What to do: Understand that opening certain types of accounts, particularly joint accounts, might have a minor impact on your credit report. Custodial accounts generally do not affect your credit.
What “good” looks like: You are aware of any potential credit reporting and are comfortable with it.
Common mistake: Not realizing that a joint account could, in rare cases, be reported on your credit, and being surprised by it.

Step-by-step (simple workflow)

1. Research Account Types:

• What to do: Explore options like joint accounts (where you and the minor are co-owners) and custodial accounts (UGMA/UTMA, where the money legally belongs to the minor but is managed by you until they reach the age of majority).
• What “good” looks like: You understand the pros and cons of each type and which best suits your goals.
• Common mistake: Assuming all accounts for minors are the same. This can lead to choosing an account that doesn’t align with your desired level of control or the child’s eventual ownership.

2. Compare Financial Institutions:

• What to do: Look at banks and credit unions. Consider their offerings for minor accounts, including fees, interest rates (if applicable), online tools, and branch accessibility.
• What “good” looks like: You’ve identified a few institutions that offer suitable accounts with minimal fees.
• Common mistake: Opening an account at the first bank you think of without comparing. You might miss out on better terms or lower fees elsewhere.

3. Check for Fees:

• What to do: Scrutinize the account’s fee schedule. Look for monthly maintenance fees, ATM fees, overdraft fees, and minimum balance requirements.
• What “good” looks like: You’ve found an account with no or very low fees, especially for common transactions.
• Common mistake: Ignoring fees, which can quickly eat into savings, particularly for smaller balances.

4. Evaluate Interest Rates (if applicable):

• What to do: If the account earns interest, compare the Annual Percentage Yield (APY) across different institutions. While interest rates for basic savings accounts are often modest, every bit helps.
• What “good” looks like: You’ve selected an account with a competitive APY for its type.
• Common mistake: Assuming all savings accounts offer the same interest rate. Rates can vary significantly.

5. Gather Necessary Documentation:

• What to do: Prepare required documents, which typically include your Social Security number, proof of identity (like a driver’s license), and the minor’s Social Security number and proof of identity (like a birth certificate).
• What “good” looks like: You have all the required paperwork ready before visiting the bank or starting the online application.
• Common mistake: Not having all documents on hand, leading to delays and multiple trips or application attempts.

6. Choose the Account Type:

• What to do: Based on your research and goals, decide whether a joint account or a custodial account (UGMA/UTMA) is the best fit.
• What “good” looks like: You’ve made a confident decision on the account structure.
• Common mistake: Picking a joint account when you want the funds to legally belong to the child, or vice-versa, without fully understanding the implications.

7. Open the Account:

• What to do: Visit a bank branch or complete the application online. Fill out all required forms accurately.
• What “good” looks like: The account is successfully opened, and you have the account number and access details.
• Common mistake: Making errors on the application form, which can cause delays or rejection.

8. Set Up Online Access:

• What to do: If available, create online banking credentials for yourself. Some institutions allow minor-specific login portals for older children.
• What “good” looks like: You can easily monitor the account online.
• Common mistake: Not setting up online access, making it harder to track transactions and manage the account.

9. Make Initial Deposit:

• What to do: Fund the account with your planned initial deposit, whether it’s a lump sum or the first of regular contributions.
• What “good” looks like: The account has a starting balance and is ready for use.
• Common mistake: Delaying the initial deposit, which can lead to procrastination on future contributions.

10. Introduce the Child to the Account:

• What to do: For older children, explain what the account is, how it works, and the purpose of the money. If appropriate, show them how to check the balance online.
• What “good” looks like: The child understands they have a savings account and what it’s for.
• Common mistake: Opening the account without any explanation to the child, missing a prime teaching opportunity.

11. Establish Regular Contributions:

• What to do: Set up automatic transfers from your checking account to the minor’s account if you plan to contribute regularly.
• What “good” looks like: Consistent deposits are being made, helping the savings grow over time.
• Common mistake: Relying on manual deposits, which are easy to forget or skip when life gets busy.

12. Review and Educate Periodically:

• What to do: Schedule regular check-ins (e.g., monthly or quarterly) to review account statements with your child, discuss their savings goals, and teach them about budgeting and saving.
• What “good” looks like: The account is actively used for financial education, not just a passive savings vehicle.
• Common mistake: Opening the account and then forgetting about it, losing the opportunity to teach valuable financial lessons.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not understanding account ownership (joint vs. custodial)	Disputes over funds, unexpected tax implications, or legal complications.	Carefully read the terms of UGMA/UTMA vs. joint accounts. Consult a legal or financial advisor if unsure.
Ignoring account fees	Savings balance dwindles quickly, reducing the overall amount saved.	Prioritize accounts with no or low monthly maintenance fees, overdraft fees, and ATM fees.
Failing to set up automatic transfers	Inconsistent savings, missed contributions, and slower progress toward goals.	Set up recurring automatic transfers from your primary checking account to the minor’s savings account.
Not teaching the child about the account	Missed opportunity for financial education; child may not value the savings.	Regularly discuss the account, its purpose, and how to save. Involve older children in checking balances and setting goals.
Using a joint account for long-term, specific goals	Funds may be used by either party for any purpose, potentially derailing plans.	For specific, long-term goals like education, a custodial account might be more appropriate to ensure funds are used as intended.
Overfunding the account without a plan	Funds are tied up and inaccessible for your own emergencies or needs.	Ensure your own emergency fund is robust before significantly contributing to a minor’s account.
Not checking statements regularly	Unnoticed fraudulent activity, errors, or missed opportunities for review.	Set a reminder to review account statements monthly or quarterly.
Choosing an account with poor online tools	Difficulty in monitoring the account, making it harder to stay engaged.	Select an institution with a user-friendly online banking platform and mobile app.
Not considering the age of majority implications	Child may gain full control of funds at an unexpected age without readiness.	Understand the age of majority in your state for custodial accounts (often 18 or 21) and plan accordingly.

Decision rules (simple if/then)

• If your primary goal is to teach a young child about saving and spending, then a joint account is a good starting point because it allows for shared oversight and hands-on learning.
• If you want the funds to legally belong to the child and be managed by you until they reach adulthood, then a custodial account (UGMA/UTMA) is more appropriate because it legally transfers ownership.
• If you are concerned about fees eating into savings, then prioritize banks or credit unions that offer accounts specifically for minors with no or low monthly maintenance fees.
• If you plan to make regular contributions, then set up automatic transfers from your checking account to ensure consistency and avoid forgetting.
• If you are saving for a specific long-term goal like college, then consider a custodial account to ensure the funds are designated for that purpose and transferred to the child’s control upon reaching the age of majority.
• If your own emergency fund is not fully funded, then prioritize building your emergency fund before making significant contributions to a minor’s account.
• If the child is nearing the age of majority (18 or 21, depending on your state), then start having conversations about financial management and how they will handle the funds independently.
• If you are gifting a large sum of money, then understand the potential tax implications and consider consulting a tax professional.
• If you want to teach the child about earning interest, then look for accounts that offer a competitive APY, even if it’s modest.
• If the minor has earned income, then explore options like a Roth IRA for minors if you want to encourage long-term investment for retirement, though this is a more advanced step.
• If you are opening an account for a very young child, then a joint account is generally simpler to manage and allows you to guide their early interactions with money.
• If you anticipate needing access to the funds for the child’s benefit before they reach adulthood, then a joint account offers more flexibility for immediate use of funds, though custodial accounts can also be used for the minor’s benefit.

FAQ

What’s the difference between a joint account and a custodial account for a minor?

A joint account means both you and the minor are owners of the funds. A custodial account (UGMA/UTMA) means the money legally belongs to the minor, but you manage it as the custodian until they reach the age of majority (typically 18 or 21).

Do I need to pay taxes on money in a minor’s account?

Generally, interest earned in a custodial account is taxable to the minor. For joint accounts, the tax treatment can depend on who deposited the funds. Consult a tax professional for specific advice.

Can a minor open a bank account by themselves?

In most cases, no. Minors typically cannot open accounts independently. An adult (parent or guardian) must be involved, usually as a co-owner on a joint account or as a custodian on a custodial account.

What happens to the account when the child turns 18 (or 21)?

For custodial accounts (UGMA/UTMA), the child gains full control of the funds upon reaching the age of majority in your state. For joint accounts, ownership remains shared unless specific steps are taken to change it.

Are there any fees I should watch out for?

Yes, common fees include monthly maintenance fees, ATM fees, overdraft fees, and inactivity fees. It’s crucial to find an account with minimal or no fees, especially for smaller balances.

Can I put money into a custodial account for any child, not just my own?

Yes, you can be a custodian for a child who is not your own, such as a niece, nephew, or grandchild, as long as you have the parent’s or legal guardian’s consent and meet the bank’s requirements.

How can I use this account to teach my child about money?

Involve them! Show them statements, discuss savings goals, let them make small spending decisions from their savings, and explain how interest works. Make it a learning experience.

What if I need to withdraw money from a custodial account before the child is an adult?

Custodial funds must be used for the benefit of the minor. You can withdraw funds for their education, healthcare, or other needs that directly benefit them. Misusing funds can have legal consequences.

What this page does NOT cover (and where to go next)

• Investment Accounts for Minors: This page focuses on basic savings and checking accounts. For long-term growth, explore options like custodial brokerage accounts or 529 plans for education savings.
• Tax Implications of Gifting: While briefly mentioned, detailed tax advice on gifting large sums or understanding the Kiddie Tax is beyond this scope. Consult a tax professional.
• Guardianship and Estate Planning: This covers situations where a legal guardian is appointed for a minor and how assets are managed in such cases. Seek legal counsel for these matters.
• Credit Building for Minors: While a minor’s account doesn’t typically build their credit directly, understanding how to establish credit responsibly for them later is a separate topic.