Youth Savings Account

A youth savings account refers to a particular type of bank account crafted to promote financial literacy and cater to the financial needs of youth at an early age. It helps youths achieve financial independence and inculcate healthy money-saving habits through informational content and interactive activities in some banks.

It has been designed for minors under the age of 18 under the guardianship of a parent or legal guardian as a joint account. They have zero or low minimum balances as compared to general savings accounts. Some banks provide interest in accounts and surprise birthday gifts to children.

A youth savings account is defined as a particular savings account created particularly for youths under 18 years to be held jointly with a guardian or their parent. They often offer goal-setting for finances to the children. It has no savings limit for minors. The capital accumulated is guaranteed to cover unplanned expenditures and fund future projects. 

These accounts have been designed to be easily accessible and user-friendly for minors. They also give incentives to deposit money in savings accounts like rewards and interest rates. All these operations in accounts can be performed and managed using the mobile app or online mode. It benefits youths in many ways, like saving habits, money management, and budgeting. 

Banking companies expand their financial services and create new future customers. It helps build the institutional ability of financial service providers. As a result, children quickly learn the manner in which banks work while knowing the benefits of savings from an early age. In the financial world, it allows banks to shape the financial outlook and habits of children to mold their future and innovative financial products. Hence, it promotes a financially responsible society and a secure, stable financial system. 

In USA banks, one has to follow the below steps to open an account:

• Choose the bank offering the best savings account for youths by surfing the internet.
• Check the eligibility criteria for youth savings account openings. 
• Collect the necessary documents for opening the savings account, like immunization records, a school photo ID, a passport, a driver's license, a birth certificate, and a social security card.  
• Please choose the most appropriate account for the child based on his eligibility and needs. 
• Visit the nearest branch, online website, or mobile app to initiate the process of account opening by creating a username and password.
• Deposit the minimum amount to open the account as per the bank norms.
• Monitor the activity of account usage by the child to look for responsible financial behavior.
• Finally, they should be taught the importance of good financial habits and saving for the future.

Let us use a few examples to understand the topic.

Example #1 

An online article that was published discusses the best youth savings accounts in May 2024. The article compared 73 types of savings accounts in 53 banks across the United States to give the best option for youths to open their accounts. As a result, it found that savings accounts of:

• Bethpage Federal Credit Union- Its student savings account has extraordinary long-term savings, which offers 5.00 APY on an initial $1000 while 1.39% on savings between $1000-$10000.
• USAlliance Federal Credit Union': Its Mylife savings for kids stands out for its bonuses, such as 2.00 % APY applied on the initial $500, along with birthday bonuses.
• M&T Starter Savings Account- It has been recommended that the first savings account be without any fees and the use of savings tools.
• Alliant Credit Union's- Its kid's savings account has ATM access with competitive rates on savings and other products.
• Northpointe Bank's- Its savings give high-yield account-laced interest rates to benefit kids eventually.

Besides these, The Chase & Bank Of America youth savings accounts are also good options for opening savings accounts for youths in America.

Example #2

Let us imagine a 15-year-old kid, Jack, who wants to have a bank account to learn about his savings. Hence, he approached his father, Hinkle, to help him get him open a savings account for youth at his father's bank, Old York Bank, based in Old York City. His father goes to his bank and queries for opening a bank account for his kid.  He learned that Old York Bank offers a 2% annual percentage yield (APY) without any minimum balance and with zero charges.

Moreover, Jack would also get to see his deposit grow with the help of interest on the deposits made using his allowance and birthday allowance. Hence, after Jack had opened his account, he entered a new world of financial management and growth.

In the USA, the Internal Revenue Service (IRS) has governed all the tax implications as below:

• The tax treatment of youth savings accounts depends on the income level and account type of the child.
• IRS considers interest given to a savings account as unearned income to be taxed at the parent's or child's tax rate, whichever may be applicable.
• If the total unearned income becomes higher than $2500 for a child account, then it will be taxed at the rate of the parent's or their own, whichever is higher.
• If a child’s total income lies below $1050 and has only interest income from a savings account, then no tax return has to be filed.
• If they have other sources of income like investments or jobs, then they have to file an income tax return.
• If a parent is the primary account holder of a savings account of youth, then the interest earned on that account will be taxed on them, leading to higher income taxes. 

There have been numerous benefits of such saving accounts for youth:

• They can teach money skills, budgeting, and saving to youths through activities and games.
• They aid children in setting financial goals, spending wisely, and prioritizing needs. 
• Children can see their savings increase through interest additions, telling them the significance of the strength of savings. 
• It also acts as a practical method of knowing the importance of money and its growth in their youth.
• The savings of such accounts inculcate lifelong financial responsibility in children.
• It becomes a launchpad of financial independence for children.
• It leads to healthy discussions about money matters within families, making a financially strong unit.
• It helps children to learn about money management.
• It guides children to learn more about ATM usage.
• Some banks offer higher annual percentage yield (APY)
• It offers zero minimum balance for opening, managing, and using the account.