Bank accounts can be an invaluable resource for people of all ages. Providing a secure place to store money, they can help individuals manage their finances more effectively. For minors, opening a bank account can also be a great way to learn financial responsibility and start saving for the future.
Several options are available when it comes to banking options for minors, including savings accounts, checking accounts, and prepaid cards – each with its own distinct benefits that must be carefully considered.
In this article, we aim to provide a comprehensive guide on the minimum age requirements for opening a bank account, so that parents and minors can make informed decisions when choosing a bank and account type.
How old do you need to be to open a bank account?
Opening a bank account is a significant milestone in one’s financial life. However, you need to be aware of the legal age requirements for doing so.
In the US, in most states, you are legally an adult at 18 years old. However, in Alabama and Nebraska it’s 19, and in Mississippi, it’s 21. Once a person reaches this age, they are considered legally responsible for their own finances and can open a savings or checking account in their own name.
However, some banks and credit unions may allow minors to open bank accounts with parental consent. The age requirement can vary depending on the bank and state laws. In some cases, minors as young as 13 years old may be able to open a bank account with the help of a parent or guardian.
While some states may have lower age requirements for opening a checking or savings account, federal law requires banks to follow the age of majority guidelines for certain types of accounts, such as credit cards and loans.
Which type of bank accounts can you open as a minor?
Opening a bank account for a minor can be a great way to teach them about managing money and help them start saving for the future.
There are several types of bank accounts available for minors, each with its own features and benefits. Some common account options for minors include joint accounts, custodial accounts, and prepaid cards.
Custodial Accounts
Custodial accounts are bank accounts that are managed by an adult on behalf of a minor. The adult, known as the custodian, has control over the account until the minor reaches a certain age, at which point they can take control of the account themselves. A custodial account can be a suitable option for parents who want to save money for their child’s future education or other expenses.
Joint Accounts
A joint bank account is an account that is owned by two or more people. For minors, a joint account can be opened with a parent or guardian, allowing them to learn about financial management while still having the support and guidance of an adult.
Prepaid Debit Cards
Prepaid cards are a great option for minors who want to access funds without risking overspending. Loaded with a predetermined amount of money, prepaid debit cards act just like regular debit cards. However, when the allocated funds on the debit card are used up, it cannot be utilized again until reloaded.
Don’t know which prepaid debit card to choose? Here are the top choices for 2024.
Educational Savings Accounts for Minors
When it comes to saving for your child’s education, there are specific accounts designed to help minors and their parents. These accounts come with tax benefits that can alleviate the burden of paying for school. Let’s take a closer look at a few of the most popular options:
529 College Savings Plans
529 college savings plans are popular among parents and grandparents who want to help fund a child’s education. These plans allow you to contribute to an account and spend the money tax-free on tuition expenses, assuming you satisfy the relevant tax laws. This can include higher education costs, as well as up to $10,000 per year for K-12 tuition.
These accounts have no income or age limits and can be used for trade schools, overseas institutions, room and board, and other expenses for college or graduate school. In addition, you can make significant contributions to these accounts, making them powerful ways to save for the future.
Coverdell ESA
A Coverdell Education Savings Account (ESA) is another option for those looking to save for education with tax-favored dollars. However, not everybody is eligible to contribute to an ESA. This account is sponsored by the federal government and can be used for educational expenses such as books, tuition, computers, supplies, and even transportation.
Funds can be used to pay for K-12 and higher education expenses. Contributions are made with after-tax dollars into investment vehicles like stocks, bonds, ETFs, and mutual funds. Growth and withdrawals are both tax-free, similar to a Roth IRA. However, there are some limitations to the Coverdell ESA.
For example, contributions are limited to $2,000 per beneficiary per year, no contributions can be made after the beneficiary turns 18, and you must make under $110,000 per year to make contributions ($220,000 if filing jointly). Despite these limitations, the Coverdell ESA can still be a great way to save for education expenses.
How to Choose a Bank for Minors
Choosing the right bank or credit union for minors is an important decision that can impact their financial future. Here are some factors to consider when selecting a financial institution for your child:
- Age restrictions: Make sure to check the minimum age requirements for opening an account. Some financial institutions may only allow minors to open accounts if they are accompanied by a parent or legal guardian.
- Account options: Look for banks that offer a variety of account options specifically designed for minors. The goal is to find a bank that provides a safe and accessible way for minors to learn about money management, save for the future, and potentially even earn some interest along the way.
- Fees: Consider the fees associated with the account, such as monthly maintenance fees, transaction fees, and ATM fees. Some banks may waive fees for minors or offer special discounts.
- Annual percentage yields: Compare the APYs offered by different banks. Although savings account APYs may be low, finding the best rate will maximize your earnings.
- Accessibility: Consider the bank’s location and availability of ATMs. Look for banks with a large network of ATMs and branches to make it easier for your child to access their funds.
- Technology: Consider the bank’s online and mobile banking capabilities. This can be particularly important for older minors who may prefer the convenience of online banking.
- Reputation: Do some research on the bank’s reputation and customer service. Look for banks with a good track record of customer satisfaction and reliable financial services.
When comparing different banks and credit unions, consider these factors and prioritize the ones that are most relevant to you and your child’s needs. With the right bank, your child can learn valuable financial skills and build a strong foundation for their future financial success.
How to Open a Bank Account if You’re Under 18
Opening a bank account as a minor requires some additional steps compared to opening an account as an adult. To open a checking account, savings account, money market account, or CD if you’re under 18, you’ll typically need a parent or legal guardian to act as a joint owner.
The exact process may vary by bank, but generally, you’ll need to bring identification for both yourself and your parent/guardian, such as a driver’s license or passport. You may also need to provide proof of address and Social Security numbers.
Once you have all the necessary documentation, you and your parent/guardian can visit a bank branch together to open the account. Some banks also offer online account opening options, but these typically require a parent or guardian to submit the application and provide their own identification information as well.
Common Fees to Watch Out for
While some bank accounts for minors may have lower fees than adult accounts, there are still some common fees to watch out for. These may include monthly maintenance fees, overdraft fees, and ATM fees.
To avoid these fees, consider choosing a bank that offers free checking accounts for minors or accounts with low minimum balance requirements. Additionally, make sure to read the fine print and understand any potential fees before opening an account. Encourage your child to keep track of their account balance and avoid overdrafts, which can lead to hefty fees.
Tax Considerations for Minors with Interest-Earning Accounts
If you’re opening a bank account for a minor, it’s important to consider the tax implications of interest-earning accounts. While minors are subject to the same federal income tax laws as adults, they may be eligible for different tax rates and exemptions.
It’s also worth noting that the tax implications of a minor’s account can vary depending on whether it is a joint or custodial account. A custodial account, for example, is typically subject to “kiddie tax” rules, which applies a higher tax rate to investment income earned by minors.
Parents or guardians who are listed on the account may also be subject to taxes on any interest earned. To avoid any surprises come tax season, it’s recommended to consult a tax professional or do thorough research on the tax implications of different account types and options for minors.
Bottom Line
It’s clear that opening a bank account for minors is a significant step towards financial literacy and independence. Whether you are a parent looking to teach your child about money management or a young person wanting to start building a financial foundation, there are various account options available for minors.
It’s essential to compare accounts and weigh the pros and cons of each option before making a decision. With careful consideration and attention to the various fees and tax implications, opening a bank account for a minor can be a wise investment in their future.
Frequently Asked Questions
What is the youngest age to open a bank account?
The minimum age to open a bank account varies depending on the bank and state. Some banks allow minors as young as 13 to open an account with a parent or guardian as a joint account holder. However, other banks may require the account holder to be 18 years old.
Can you open a bank account for a baby?
Yes, it is possible to open a bank account for a baby. Some banks may require the baby to have a Social Security number or other identification, but otherwise, the process is similar to opening an account for an adult.
Parents or guardians can set up the account and manage it until the child is old enough to take over. There may also be special savings accounts available specifically designed for children or babies. It’s important to shop around and compare fees and interest rates before choosing a bank and account type.
When should kids get a bank account?
Deciding when to get a bank account for your kids depends on their financial needs and maturity level. If they are earning money or receiving an allowance, it might be a good time to consider opening an account. Teaching them how to manage money early on can also help them develop good financial habits later in life.
What is the legal age to open a bank account?
The legal age to open a bank account is typically 18 years old. However, some banks allow minors to open accounts with a parent or guardian. It’s important to check with the bank for their specific requirements.
How much do I need to open a kid’s bank account?
The amount needed to open a kid’s bank account varies by bank and account type. Some checking and savings accounts may have no minimum balance requirement, while others may require a minimum initial deposit to open the account. Additionally, some accounts may have monthly maintenance fees or other associated costs.
Can a 16-year-old open a bank account on their own?
Typically, a 16-year-old can open a bank account on their own, but it may depend on the bank’s policies and state regulations. Some banks may require a parent or guardian to be a joint account holder for minors under 18 years old.
How can I avoid fees associated with minor bank accounts?
To avoid fees associated with minor bank accounts, look for accounts with no monthly maintenance fees or low balance requirements. Additionally, some banks may waive fees for minors under a certain age or if they open an account with a parent or guardian. It’s important to read the account terms and conditions carefully to understand any associated fees.
