When a new baby arrives, it’s almost inevitable that you will need to set up a bank account for your child. Setting up a custodial account for your little one takes a little time and organization, but it is a great first step in helping your son or daughter financially for the future. The bank account will likely be a savings account for your child’s college fund, but having a place to deposit checks from birthdays, Christmas, and special life events can be a great way to organize your kid’s finances as well.
To set up a bank account for your little one, you will typically need his or her social security card (or at least the social security number) and the birth certificate. You will also need signatures of anyone who will be considered a custodian of the account, so if both parents will be on the account, it may make sense to go to the bank as a family or to bring the form to complete at home.
Once you have your baby’s new account set up, you can deposit all the checks and cash you receive from the baby shower, baby’s birth, and his or her Baptism. As the years roll by, you can deposit cash gifts, and even encourage your child to put away a little bit of his or her allowance or money earned from any odd jobs and part-time employment.
A custodial account has a lot of benefits for you and your child. When your child reaches the age of 18 to 21, depending on the state, you can change the account from a custodial account to a standard account where your son or daughter has full control, but it is very convenient during their younger years. Your child’s transactions are limited in a custodial account where the custodian must approve transactions. The custodial account’s setup can be especially convenient while your child is in college, though, since you can deposit checks and add funding to the account as needed.
In some custodial accounts, the custodian may also be able to write checks and use an ATM card to make deposits or withdrawals from the account. This gives an added convenience to managing the account, making it easier to handle funds going in or coming out.
Another great benefit of custodial bank accounts for kids is the versatility when children go on to college and potentially, to study abroad programs out of the country. The parents or guardian can add funding to the account, which may be used to pay back credit card bills incurred while the student is traveling and studying abroad.
All funds in the account must be saved or used for the child. It is the parent or guardian’s responsibility to spend any money withdrawn only on purchases or transactions or the child. The account belongs to your son or daughter, and he or she will take over the full responsibility for it upon reaching adulthood. You can use this account to build a strong foundation for your child so he or she can learn about personal finances and good behaviors related to saving money. You might also want to look into a 529 plan for college savings for your kids. With your guidance, your child can dream big about college and an amazing future in the years to come.