Contributed by Polina Polishchuk, NextAdvisor.com
There is a way for you to kill two birds with one stone — set up a savings account for your kids that they can use for personal use but can also double as their college savings.
Almost half of those who closely monitor their finances say they learned how to do so from their parents, which means starting to teach your kids early about money is essential. And with college tuition costs going up every year, “every dollar they save is a dollar less they have to borrow,” says FinAid.org publisher Mark Kantrowitz. While they may already have a piggy bank or savings bonds that their great aunt gives them every holiday, there are other, higher-yielding options.
While setting up an account with your financial institution might seem like the obvious choice, there is a better option: Online savings accounts. Higher interest rates, zero fees and educational opportunities are just some of the benefits of using an FDIC-insured online savings account for your kids.
Take a look at some of the benefits that an online savings account can add to your kids’ future:
It’s a no-brainer that the more interest you earn on your child’s account now, the more money they’ll have in the future. Since the cost of running an online bank is much less than a physical bank, online savings accounts offer higher APYs than regular accounts.
Currently, a regular savings account at Bank of America will get you a .01 percent APY, while the Ally online savings account is offering a .90 percent APY on all balances. If you have more than $5,000 to deposit, then Everbank’s APY of 1.25 percent for six months and 1.05 percent thereafter is something to consider as well. Not having to maintain physical branches and pay more employees saves online banks more money, which they can then pass on to their customers. Find out how much extra interest you can earn with this online savings account calculator.
Saving for your kids needs to start somewhere, so even if you start with a low balance, you’re still benefiting your child’s future. This is especially important if children are starting the account with their own small deposit — every cent counts. And while traditional banks often charge fees on savings accounts with low balances, most online savings accounts like Ally, Capital One 360 and American Express have zero fees, no matter what your balance is.
Convenient auto-savings features allow you to set up automatic transfers from your bank’s checking account to your child’s online savings account. By linking your checking account to their savings account and having automatic transfers every month, you are incrementally saving for your child without ever having to lift a finger. Plus, with online savings there’s never a need to walk to the bank because all the information you need is right on your screen. These sites are just as secure as regular online banking and, more often than not, are easier to use and navigate.
Sometimes, saving money can be difficult to grasp for a child, especially when there are so many candy bars, toys and clothes (especially for teenagers) everywhere they turn. With online savings accounts, withdrawing money electronically takes about three business days, significantly lowering the temptation to constantly use their savings money.
If you start teaching your kids about savings when they’re young, by the time they become more mature and start earning their own money, saving will be second nature. When using an online savings account, all of the account information is laid out right in front of you, so you can use it as an educational opportunity to teach your kids about financial growth and money management. Another reason why it’s important to teach your kids about online savings in particular is because by the time they’re older, they will be doing most of their banking online, so they might as well start early.
Whether you and your child start saving with $5 or $5000, opening an online savings account is the best way to get the highest interest rate, teach your kids about saving and grow their account without worrying about fees.
About the author:
Polina Polishchuk is a NextAdvisor.com editor who covers online backup, internet fax, cloud storage, online diet programs, email marketing services, fashion clubs, online savings accounts, payday loans and online stamps services. She is a UC Berkeley graduate who currently resides in the San Francisco Bay Area. When she's not tinkering with online services, she's going to shows, rock climbing or eating sushi.
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