Child Savings Account

slumpa1 · October 2013

We started a college savings account for DD that we contribute to each month, but we have some money that we got for her baptism tha we've yet to do anything with. I would like to start a savings account that she can use for stuff for things later on that might not be college related (i.e. high school trips for band/choir, part of her first car, etc.) Though we'll likely help her out with these things, I think it's good to have them contribute with some of their money--that is what we always did. I talked to DH about this, and I get that interest rates on a savings account are very minimal, but he wants her to get a better interest rate on this money. He would rather start a Roth IRA. I get that retirement is important, but for an infant?!? Sounds crazy. There has got to be something better out there that can get a decent return if you leave it in there a while. Thoughts? What are you doing for your kid(s)?

JSS1002 · October 2013

Well, a ROTH IRA is a great idea, yes, starting as an infant, because there's a max cap on it per year and you can only contribute to it up until a certain age.

But that isn't a good idea for an account for things she might want to buy, because an IRA is meant for retirement. Honestly, I'd just start her a savings account at the local bank, use it to teach her about money and how to save for things like a bike or a purse. If you want to look into an ING Orange account, I think those have higher interest rates (online bank). You could also look into a money market account.

mariahrb · October 2013

my husband bought a savings bond when Bradley was born. im not sure what its all about but it might be worth looking in to. my husband tends to be pretty savvy with money/saving/retirement etc.

JordynLeighx3 · October 2013

We started a 529

JSS1002 · October 2013

JordynLeighx3 said:

We started a 529

We did too, but that has to be used for education... I think OP was interested in something that could be used for things her child needs/wants to spend money on (band trips, new bike, first car, etc).

ClandestineX · October 2013

I have an UGMA/UTMA account for Connor.

capstone52501 · October 2013

We started just your basic savings account for our daughter, she is 11 now. Our bank has what is called a Dollar Dog savings account for kids. For every $10 she/we put in her account she gets a Dollar Dog wooden coin that can be kept and then when she gets enough can buy things like a pass to our local water park, a t-shirt, little bank, or a few other things. She has a bag full that she never spends mostly because we forget about them.

She also gets a monthly "newsletter" with little things in it for kids. Once a year they have a beach party just for Dollar Dog account kids at the local water park and then in March I believe they have a movie day and they take the kids to new release movie at the theaters. There is also a Halloween party, and an Easter egg hunt.
I have a huge jar of money for our LO so plan on opening him his own account.

I know it has been a huge learning experience for our daughter to have her own account. If she gets a large sum of money for her birthday or Christmas she saves out a little to spend an puts the rest in her account.

Her goal is to have enough money to get a car when she gets older.

skidderdo · October 2013

Roths are awesome, more for long term but PP are correct, there may eventually be an income cap that prevents your LO from contributing.

slumpa1 · October 2013

We already have a 529 that we contribute to, just looking for something that she would be able to use for non-college expenses. We currently have ING Direct/Capitol One 360 that has the higher interest rate that normal savings, but DH is not thrilled about that. He says with the Roth you can take the money you put in it back out at any time and don't get penalized because you've already paid taxes on it (not the case for the interest you've accrued). My thought is, for how little is going to actually be in there, it's just easier to do a basic saving account. Who knows. That Dollar dog account sounds like a great option that helps kids get excited for savings, I'll have to see if ours has anything like that.

JSS1002 · October 2013

chgibeau said:

Maybe someone covered this already, I didn't read the other posts. But a Roth can be used for Education, not just Retirement. And a Roth in and of itself doesn't earn more than any other account. It's what the money is invested in (the particular stock, bond, or mutual fund, etc). You can invest money in a savings account in her name (UTMA, UGMA) too. This would probably be your best bet since it's primary goal is "fun" stuff and not retirement or education.

ETA: A 529 can be used for school related things - so high school band trip- covered. Private elementry school tuitution - covered. text books or apartment rent for college - covered. and you can take the money out for non school things but then it's taxalbe. Or you can change the beneficiary (once per year) to another child or even you!

Interesting-- that is not how it was explained to us (re: 529).

Re Roth: there is also a tax advantage I believe,as it grows tax free and there is no tax hit when you use it,assuming it is for a qualifying expense, right?

CoachAP · October 2013

We added a savings plan to our ALLY account. they have higher interest rates then Capital One. Once we have enough saved, we'll move it to a higher interest product.

jaime52005 · October 2013

I just opened a children's savings account @ a valley national bank..they gave us 10$ to start

love4b · October 2013

We've bought B some really stable, high-dividend stocks. The inflation rate is currently around 1.9%, so unless you're making that or more in interest, your cash is actually loosing value. My parents bought me stocks as a kid and let me choose what to buy later and it was something I really liked. I actually really liked learning about dividends and growth rates and why stocks go up and down.

Back in the olden days of getting the actual paper version of the Wall Street Journal delivered, my mom and I would look through all the market news and I'd be like, 'ooh, YYY company went up 10%" and then we'd find out what that company was and what happened to make it spike and decide whether it was a good investment or not. It usually wasn't, but it was fun to research what the company did, etc.

Plan on doing the same thing with B

JSS1002 · October 2013

minxyglams said:

We've bought B some really stable, high-dividend stocks. The inflation rate is currently around 1.9%, so unless you're making that or more in interest, your cash is actually loosing value. My parents bought me stocks as a kid and let me choose what to buy later and it was something I really liked. I actually really liked learning about dividends and growth rates and why stocks go up and down.

Back in the olden days of getting the actual paper version of the Wall Street Journal delivered, my mom and I would look through all the market news and I'd be like, 'ooh, YYY company went up 10%" and then we'd find out what that company was and what happened to make it spike and decide whether it was a good investment or not. It usually wasn't, but it was fun to research what the company did, etc.

Plan on doing the same thing with B

Actually I remember doing this with my dad too,although they were his stocks, not mine. Jeez,that seems like a really weird memory now, I can't even imagine using an actual newspaper to look that up! I track everything online (duh,I"m sure everybody does). Do they even print it in the paper anymore?

lovelyday39 · October 2013

I think compound interest is one of the amazing mysteries of the modern world. Go for the IRA, IMO it's one of the best things you could do for your kid monetarily beyond a 529.

Kate_C · October 2013

@minxyglams - will you be my financial advisor?

love4b · October 2013

Kate_C said:

@minxyglams - will you be my financial advisor?

I would love to, but if I messed up, I think you could sue me... :-S

JSS1002 · October 2013

JSS1002 said:

chgibeau said:

Maybe someone covered this already, I didn't read the other posts. But a Roth can be used for Education, not just Retirement. And a Roth in and of itself doesn't earn more than any other account. It's what the money is invested in (the particular stock, bond, or mutual fund, etc). You can invest money in a savings account in her name (UTMA, UGMA) too. This would probably be your best bet since it's primary goal is "fun" stuff and not retirement or education.

ETA: A 529 can be used for school related things - so high school band trip- covered. Private elementry school tuitution - covered. text books or apartment rent for college - covered. and you can take the money out for non school things but then it's taxalbe. Or you can change the beneficiary (once per year) to another child or even you!
Interesting-- that is not how it was explained to us (re: 529).
Re Roth: there is also a tax advantage I believe,as it grows tax free and there is no tax hit when you use it,assuming it is for a qualifying expense, right?

@JSS1002 I work for two financial advisors. For the 529, you just have to keep receipts in case you get audited and it was used for some other school expense other than tuition. I'd ask for clarification from whomever you spoke to. Oh and also, if your state has a 529 plan, your contribution up to a limit may be a tax deduction. (In WI, if you save up to $3,000, you can write it off on your taxes!!! You can obviously save more into the account but there is no tax deduction benefit past the limit.)

A Roth IRA is the #1 best retirement vehicle to save into. It's advised that if you get a match into your employer's 401k, you should save up to the match since it's free money and then save the rest into a Roth. You are right about the tax advantage of a Roth. You can always get at the principal tax free. After 59.5 yrs old, you can get at the whole account tax free (principal and interest/gains). Before 59.5, you can use it for qualifing education expenses tax free.

HEy thanks for the advice! I over contribute to my 401K so maybe I should roll the overage (more than the match amount) over into my Roth. I usually make a lump sum Roth deposit at the end of the year,but this might work out better. Thank you!

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