Here’s a scenario: It’s your birthday and you receive a check as a gift. What do you do with it?
Perhaps your best option if you’re under the age of 18 and don’t already have one is to open a savings account, also known as a Custodian Account. A Custodian or Custodial Account is an account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21 (depending on state legislation). Although most custodians who manage the bank accounts are parents, guardians, or relatives, the custodian doesn’t have to be related to the child to set one up.
Some of the basics you need to know for starting a savings bank account for a minor:
Custodial Accounts are a great way for children to begin saving their money whether from monetary gifts, allowance or even a part-time job. By monitoring their accounts, children can see how much they’re collecting. Limited withdrawals also helps protect the money in the bank so children are not tempted to spend it.
In most cases, parents and guardians create these accounts to help save for college but that doesn’t mean the money has to go solely for a college education. Accounts like a 529 Plan are used to save specifically for college while a regular savings or custodian account can be used for other things the minor desires. Once deposited into the minor’s account, the money is the minor’s property and can be spent however seen fit. Once a child turns 18 or 21, the account transfers over to a regular savings and checking account.
Have you opened up your saving’s account yet? Share with us what tips you might have about creating a custodial account for a minor.