Once my son’s savings piggy bank accumulated a fair amount, it had been my plan to take him to a local bank to open a passbook savings account, so he could experience opening an account, have tangible evidence of his money and watch it grow. I recently began the search for a passbook savings account and came to the realization that this type of account has gone the way of the Dodo bird.
For those unfamiliar with this type of account, it’s a savings account that comes with a physical booklet that gets stamped with the amount of deposits and withdrawals (similar to a check register). So I broadened my search to see what type of savings accounts (not investment accounts) are available for kids. I called a few local banks and some national ones with large footprints locally, as well as one online-only bank (CapitalOne 360).
The general consensus is that most all banks offer what is known as a CUTMA (stands for California Uniform Minors Trust Account) and a few also offer a type of joint savings for kids and their parents (not much different than a CUTMA). A CUTMA account is managed by the parent, but legally becomes the child’s asset at age 18. This has several implications. One is that the interest is taxed at the child’s rate (the first $1,900 of income), so can be a bit of a tax break for the parent. The second is that the asset is counted as the child’s asset for financial aid purposes for college, so counts at a higher rate (20% vs. 5.6%). However, if you are unlikely to qualify for need-based financial aid (i.e., if the parents are middle to upper income), then this becomes a bit of a moot point. A final consideration is that a CUTMA account becomes a child’s asset to do with as they wish at age 18, so if the account is likely to have a sizable sum in it or you aren’t comfortable with this loss of control, then saving in a regular savings account in the parent’s name or a 529 account (for college savings) might be more appropriate.
It’s important to distinguish whose money it is and what its purpose is. If it’s really the child’s money from allowance and gifts, then it really should be in a CUTMA or similar account because it’s really theirs. If it’s money the parent is saving for the child for college or some other purpose, then you have more choices, including a CUTMA, account in the parent’s name or 529 college savings plan to name a few. In this article, I’m really focused on where to put the child’s own money.
Whichever route you choose, be sure to ask if the account has a minimum required balance, monthly fees and what the interest rate is. The table below summarizes my recent research:
|Bank of America||CUTMA||$300||0.05%|
|Bank of Marin||CUTMA||$0||0.50%|
|Bank of Marin||Kid’s Savings||$10||0.40%||Gift upon open|
|Wells Fargo||Minor By Savings||$25||0.05%||no access until 18|
|Union Bank (Tamalpais Bank)||CUTMA||$300||0.01%|
|CapitalOne 360 (ING Direct)||Kid’s Savings||$0||0.75%||no access until 18|
I ended up opening a CapitalOne 360 Kid’s Savings account, which operates very much like a CUTMA, because we already have a relationship with CapitalOne and they currently pay the highest interest (still puny at 0.75%).