Best savings accounts for kids

Introducing your child to the world of savings can be one of the most rewarding decisions you make as a parent. While there are options like the Canada Child Benefit to help parents cover some costs of raising children, such as education expenses, a savings account provides kids with a practical understanding of money management and instills the values of patience and planning for the future. Choosing the best savings account for your child is crucial to setting them on the right path toward financial independence.

In today’s financial landscape, many options are available tailored to different needs and preferences, such as saving for your child's education. From high-interest savings accounts to those with educational resources and rewards, the choices can be overwhelming. That's where we come in! We’ll help you navigate the top savings accounts designed specifically for kids.

We aim to empower parents and guardians with the knowledge to make informed decisions, ensuring your child’s financial journey begins on a solid foundation. Join us as we explore the best savings accounts for kids, highlighting their unique features, benefits, and what makes them stand out in a crowded market. Let's make your child’s first step into the world of savings a confident and successful one.

Introduction to savings accounts for kids

Importance of teaching financial literacy

Financial literacy is a fundamental life skill often overlooked in traditional education. Teaching your child the basics of managing money from a young age equips them with the knowledge and habits needed for a financially secure future. Understanding concepts such as saving, budgeting, paying debt, and interest helps children make informed financial decisions as they grow. Moreover, these lessons foster a sense of responsibility and independence, preparing them for real-world financial challenges.

When should you start a savings account for your child?

The earlier you start teaching your child about money, the better. Many financial experts recommend opening a savings account as your child receives their first allowance or gift money. Even young children can benefit from seeing their savings grow and learning the value of delayed gratification and financial planning.

• Infants and toddlers: While they may not understand the concept of money, starting a savings account early allows you to build a financial cushion for their future needs, such as education or extracurricular activities.

• Preschool and early elementary: This is an ideal time to introduce basic financial concepts. Children can begin to grasp the idea of saving money for specific goals, like a new toy or a special outing.

• Middle and high school: As children grow, their understanding of money becomes more sophisticated. A savings account can be a valuable tool for teaching them about budgeting, interest, and long-term financial planning. This is also a great time to introduce more advanced concepts, such as compound interest and investment basics.

Types of savings accounts for children

Canada offers a variety of savings accounts and alternatives to savings accounts designed specifically for children. These accounts provide different features and benefits, helping parents choose the best option for their child's financial future. Knowing how to calculate interest on savings can give them an idea of how their earnings may look as they save money.

Youth savings account

Youth savings accounts are for young savers and typically offer no monthly fees, no minimum balance requirements, and higher interest rates compared to regular savings accounts. They feature free transactions, online banking access, and educational resources to help kids learn about saving and managing money.

Children's Registered Education Savings Plan (RESP)

An RESP is a tax-advantaged account where contributions can be matched by government grants, such as the Canada Education Savings Grant (CESG). Many parents open RESPs for college savings for their child's higher education. RESPs have tax-deferred growth, government grants, and flexibility in investment options.

High-Interest Savings Accounts (HISAs)

HISAs offer higher interest rates than standard savings accounts, allowing children to earn more on their savings. While not exclusively for children, parents can open these accounts on behalf of their kids. The competitive interest rates and low monthly fees make HISAs attractive for kids to save for various goals.

Joint savings accounts

A joint savings account allows the parents and child to access the savings account. It can be a great way to teach children about money management while maintaining parental oversight of the bank account. Most financial institutions offer joint savings accounts.

Custodial accounts

A custodial account is managed by an adult, typically the parent or guardian, until the child reaches the age of majority. These accounts can include savings accounts, investment accounts, or a combination of both. Custodial accounts feature parental controls, the potential for higher returns through investments, and ownership transfer to the child at the age of majority.

Tax-Free Savings Account (TFSA) for youth

Once a child turns 18, they become eligible to open a TFSA. This account allows for tax-free growth of investments and savings. TFSAs have flexibility in withdrawals and various investment options based on your needs. TFSAs are offered by major banks and financial institutions.

Benefits of setting up a savings account for your kid

Early financial education

A savings account provides a practical tool for teaching children how to manage money, including making deposits, tracking balances, and understanding interest. This early introduction to financial concepts helps children develop budgeting skills, plan for purchases, and distinguish between wants and needs, laying the groundwork for financial literacy.

Building good financial habits

Contributing regularly to a savings account instills the habit of saving money, which is crucial for long-term financial health. It also teaches children the value of delayed gratification as they learn to wait and save up for bigger purchases, fostering patience and discipline that will benefit them throughout their lives.

Learning compound interest

Savings accounts often come with interest, allowing kids to see firsthand how their money grows. This early exposure to compound interest can teach them the significant benefits of long-term saving and motivate them to continue saving and setting larger financial goals.

Goal setting

A savings account allows children to set and achieve financial goals, whether it’s saving for a new toy, a trip, or future education expenses. Achieving these goals provides a sense of accomplishment and reinforces the rewards of disciplined saving, encouraging them to set and reach new financial milestones.

Parental involvement

A savings account opens up opportunities for parents to have meaningful discussions with their children about money, savings, and financial planning. It also provides the parents an opportunity to learn about building a budget as new parents to set their kids up for success. Through guided learning, parents can support their children in making financial decisions, providing valuable education, and instilling confidence in managing their finances.

Security and safety

Money kept in a savings account is protected from being lost or stolen, offering a safer alternative to cash. Additionally, funds in a bank account are insured by financial institutions, providing an extra layer of security and peace of mind.

Building credit history

Some savings accounts, especially those linked to custodial accounts, can help establish a child’s financial identity, which can be beneficial for future credit needs. A good banking history can assist children when they are ready to open their accounts or apply for credit, laying a solid foundation for their financial future. Starting to build a credit score early can give your child more time to improve their creditworthiness and go above the average Canadian credit score.

Educational resources

Many banks offer educational resources and tools tailored to young savers, helping them engagingly learn more about finances. Online banking platforms often feature interactive elements that make learning about money fun and accessible, further enhancing their financial education.

Encouraging responsibility

A savings account gives children a sense of ownership and responsibility for their money. As they grow, they can start making independent financial decisions, building confidence, self-reliance, and a strong sense of financial responsibility.

Key features to consider

When selecting a savings account for your child, it's essential to evaluate various features to ensure the account meets their needs and helps foster good financial habits.

Interest rates

One of the most important features to look for is a competitive interest rate. Interest rates affect your savings as higher interest rates mean the money in the account will grow faster. Compare the rates from different banks to find the best option for maximizing your child's savings.

Monthly fees

Be mindful of any monthly maintenance fees associated with the account. Many banks offer youth savings accounts with no monthly fees, which is ideal for children's accounts since it ensures that their savings aren't eroded by charges. Always read the fine print to understand any potential fees or conditions that could affect the account balance.

Additional features and benefits

Beyond interest rates and fees, consider other features that can enhance the account's value and functionality. These may include:

• Educational resources: Some banks provide financial education resources tailored for young savers. These tools can help children learn about money management engagingly and interactively.

• Parental controls: Look for accounts that offer parental oversight features, such as the ability to monitor transactions, set savings goals, and receive alerts. This allows parents to guide their children's financial activities while giving kids a sense of independence.

• Accessibility: Ensure the account is easily accessible through online banking and mobile apps. This convenience can help children track their savings and learn to manage their accounts from anywhere.

• Automatic transfers: Some accounts offer automatic transfer options, allowing parents to set up regular contributions to their child's savings account. This feature can help instill the habit of regular saving without requiring manual deposits each time.

• Rewards programs: Certain savings accounts come with reward programs that provide incentives for maintaining balances or achieving savings goals. These programs can make saving more fun and motivating for children.

• Account conversion options: Consider whether the account can be easily converted to a different type of account as your child grows. Some banks offer accounts that transition smoothly from youth savings to student or adult savings accounts, ensuring continuity and convenience.

How to open a bank account for a child

Opening a bank account for your child is a straightforward process that involves a few key steps and requirements.

Documents required

When opening a bank account for a child, you’ll need to provide several documents to verify both your identity and your child's identity. Commonly required documents include:

• For the parent or guardian:

  • Government-issued photo ID (e.g., passport, driver’s license)

  • Proof of address (e.g., utility bill, rental agreement)

• For the child:

  • Birth certificate or passport

  • Social Insurance Number (SIN), if applicable

  • School ID (for older children)

Minimum age to open a bank account in Canada

There is no specific minimum age to open a bank account for a child in Canada, but generally:

• Children under 12 years old: A parent or legal guardian must open the account on their behalf, and the account is usually in the parent’s name with the child as a joint account holder or beneficiary.

• Ages 12 to 17: Teenagers can often open their bank accounts with parental consent, but this varies by bank. They may need a parent or guardian to co-sign the account or provide identification and proof of guardianship.

What to expect during the application process

The application process for opening a bank account for a child typically involves the following steps:

1. Research and choose a bank: Compare different banks and their offerings for youth accounts. Consider interest rates, fees, additional features, and benefits that suit your child’s needs.

2. Gather required documents: Ensure you have all necessary documentation for you and your child, as outlined above.

3. Visit the bank: You can visit a branch in person or, in some cases, start the application process online. An in-person visit may be required to finalize the account opening.

4. Fill out the application form: Complete the account application form with your details and your child’s information. This form will require information such as names, addresses, dates of birth, and Social Insurance Numbers.

5. Provide documentation: Submit the identification documents. The bank representative will verify these documents and may take copies for their records.

6. Review terms and conditions: Carefully review the terms and conditions of the account, including any fees, interest rates, and account features. Make sure you understand the responsibilities and benefits associated with the account.

7. Initial deposit: Some banks may require an initial deposit to open the account. This amount can vary, but it is typically a nominal sum.

8. Set up online banking: If available, set up online and mobile banking for the account. This allows you and your child to monitor the account, track savings, and manage transactions conveniently.

9. Receive account details: Once the application is approved, you’ll receive account details, including the account number, debit card (if applicable), and any necessary login information for online banking.

10. Start using the account: You can begin using the account immediately after it’s set up. Encourage your child to make deposits and monitor their savings, fostering a sense of financial responsibility.

Saving for your child's future

The earlier you start saving for your child's future, the more time the money has to grow in various investments and savings products. You can use the average savings by age numbers as a benchmark to see whether your child is on the right track.

How to set kids up for financial success

• Start early: The sooner you begin saving and investing for your child, the more time your money has to grow. Use compound interest to your advantage by starting as early as possible.

• Teach financial literacy: Educate your child about money management from a young age. Teach them about budgeting, saving, investing, and the importance of financial responsibility. Practical lessons, like using a savings account, can be very effective.

• Open a savings account: Set up a dedicated savings account for your child. Encourage regular deposits from allowances, gifts, or part-time jobs to instill the habit of saving.

• Invest in education savings plans: Utilize Registered Education Savings Plans (RESPs) in Canada, which offer tax-deferred growth and government grants to help save for your child's post-secondary education.

• Use investment accounts: Consider opening investment accounts like custodial or joint brokerage accounts to invest in stocks, bonds, and mutual funds for your child's future.

Setting up a trust

Setting up a trust can provide long-term financial security for your child.

Determine the purpose

The first step in setting up a trust is to clearly define its purpose. You might want to set up a trust to fund your child's education, provide for their future living expenses, or protect an inheritance until they reach a certain age. Understanding the specific goals of the trust will guide you in selecting the appropriate type and structure.

Choose the trust type

There are various types of trusts to consider, including benefits and restrictions. A revocable trust allows you to retain control over the assets and make changes to the trust during your lifetime. This flexibility is beneficial if your circumstances or intentions might change.

An irrevocable trust cannot be altered once it is established. It offers significant tax benefits and protects the assets from creditors, making it a good choice for long-term asset protection.

Select a trustee

Choosing a trustworthy and capable trustee is crucial, as this person or institution will be responsible for managing the trust's assets and adhering to its terms. The trustee should be someone with financial acumen and a strong sense of responsibility. You can appoint a family member, friend, or a professional trustee such as a bank or trust company.

Draft the trust document

The trust document is a legal instrument that outlines the terms of the trust, including the beneficiaries, the trustee's responsibilities, and the conditions under which the trust's assets can be distributed. Working with an experienced attorney is essential to ensure the document is comprehensive and legally sound.

The document should clearly state how the assets are managed, when distributions should be made, and any specific instructions or restrictions.

Fund the trust

Once the trust document is finalized, you need to transfer assets into the trust. These assets can include cash, investments, real estate, and other valuable items. Properly titling the assets in the name of the trust is a critical step to ensure they are managed according to the trust's terms. The funding process may require updating titles, deeds, and beneficiary designations.

Communicate with beneficiaries

It's important to explain the purpose and terms of the trust to your child (if appropriate) and any other beneficiaries. Clear communication helps to manage expectations and ensures that all parties understand the benefits and conditions of the trust. This transparency can also prevent potential misunderstandings or conflicts in the future.

Life insurance options

Life insurance can provide financial protection for your child's future. Here are the main types of life insurance to consider:

• Term life insurance: Provides coverage for a specific period, such as 20 or 30 years. It's generally more affordable and is designed to cover the policyholder during their working years.

• Whole life insurance: Offers lifetime coverage with a cash value component that grows over time. It’s more expensive than term life insurance but can be a valuable asset for long-term financial planning.

• Universal life insurance: A flexible policy that combines lifelong protection with an investment component. Policyholders can adjust their premiums and death benefits.

• Child life insurance: Policies for children provide a death benefit and may accumulate cash value. These policies can be converted into adult policies later in life.

How to implement life insurance for your child's future

• Evaluate your needs: Consider your family’s financial situation and long-term goals to determine the type and amount of coverage needed.

• Compare policies: Research different policies and providers to find the best coverage options and rates. Consult with a financial advisor for personalized recommendations.

• Apply for coverage: Complete the application process, including any necessary medical exams and underwriting procedures.

• Review regularly: Periodically review your life insurance coverage to ensure it continues to meet your family’s needs and adjust as necessary.

Choosing the Right Savings Account

Selecting the right savings account for your child is crucial in setting them on the path to financial success.

Research and compare accounts

Research and compare various savings accounts offered by different financial institutions. Look at both traditional and online banks, as online banks often offer higher interest rates and lower fees due to reduced overhead costs. Consider the reputation and customer service of the bank as well. Reading reviews and seeking recommendations can provide insight into the quality of service you can expect.

Evaluate features and benefits

Beyond the basic interest rates and fees, assess the additional features and benefits each account offers. Some accounts come with educational resources tailored for young savers, which can be invaluable for teaching your child about money management.

Features like online banking, mobile apps, and automatic transfer options can make it easier for you and your child to manage the account and track savings progress. Parental controls and oversight features can also be beneficial, allowing you to monitor transactions and set savings goals.

Accessibility and convenience

Ensure that the account is easily accessible. Online and mobile banking options provide convenience, allowing your child to monitor their savings and make transactions from anywhere. Accessibility is important if you anticipate making frequent deposits or if your child will be actively involved in managing their account.

Consider long-term flexibility

Look for accounts that offer flexibility and can grow with your child. Some savings accounts can be converted to student or adult accounts as your child grows, providing continuity and smooth transitions. Additionally, check if the bank offers other financial products your child might need later, such as investment accounts or credit cards, to create a long-term banking relationship.

Simple money management tips for kids

1. Start with a piggy bank: Introduce your child to saving by giving them a piggy bank. This is a tangible way for them to see their savings grow and learn the basics of saving money.

2. Set savings goals: Help your child set achievable savings goals. Whether it’s saving for a toy, a book, or a special outing, having a goal can motivate them to save.

3. Give an allowance: Provide a regular allowance to teach kids about earning and managing money. You can also tie the allowance to chores to instill a work ethic.

4. Divide money into categories: Teach your child to divide their money into categories such as saving, spending, and donating. This helps them understand budgeting and the importance of different financial priorities.

5. Open a bank account: Once they’re ready, open a bank or savings account for your child. This not only teaches them about savings accounts vs. current accounts and how to use their money wisely. Starting your child with a debit card teaches them the concept of spending their own money.

6. Discuss needs vs. wants: Discuss the difference between needs and wants. This helps kids make thoughtful spending decisions and understand the value of money.

7. Encourage comparison shopping: Teach your child to compare prices and look for the best deals. This can be a fun activity showing them how to make their money further.

8. Use educational games and apps: Utilize games and apps designed to teach kids about money. These tools make learning about finances fun and engaging.

9. Lead by example: Children learn a lot by observing their parents. Demonstrate good money management habits, such as budgeting, saving, and making wise spending choices.

10. Celebrate milestones: Celebrate when your child reaches a savings goal or makes a smart financial decision. Positive reinforcement encourages them to continue practicing good money management.

Start your child's financial journey early with KOHO

Starting your child's financial journey with a KOHO savings account is a smart and practical choice. When your child reaches 18 years old, you can help them set up a KOHO account to build responsible financial management skills from a young age.

By leveraging KOHO's user-friendly platform, competitive interest rates, and educational tools, you can instill essential money management skills and set the foundation for a secure financial future. It's a proactive step that helps your child maximize their savings and teaches them valuable lessons in financial responsibility and independence. Explore the accounts that are available and start saving with KOHO today.