As a new parent, there are many details to be planned. However, saving for your child’s future is an important financial responsibility that you may want to start preparing sooner or later.
The good news is that there are many options to launch a savings fund for your baby. Even if you only have the ability to take away a few extra dollars a month, making a consistent savings habit for your child over time could produce great benefits.
When you are willing to start saving money for the future of your child, you may need to consider setting up a particular, separate account to hold money. The best savings for babies and children have an above average refund, low fees and potential tax relief.
Here are four smart ways to launch a baby savings fund, depending on your goals.
Opening a savings account for your baby may be a simple way of low risk to prevent money from your child’s future. So, if you are planning to open a savings account for your child, you may need to consider whether a savings account with a high yield (HYSA) can be good for your goals.
High yield savings accounts are deposit accounts that usually offer above average interest rates compared to traditional savings accounts-10 times more than a national average. And if you open HYSA with a bank secured FDIC, you can believe that your deposits are safe (up to $ 250,000 per depositor, by category of account ownership).
One disadvantage: high -yield savings accounts come with variable interest rates that can be increased and lowered with market conditions. In addition, despite competitive rates compared to other types of deposit accounts, they still do not fit the yields that you can achieve by investing in the market.
High yield savings accounts are usually found on online banks, but you should also check with traditional banks and credit unions. It is wise to compare multiple HYS account options to make sure you find the best price and account conditions.
Read more: 10 of the best savings accounts with high yield available today
Another way to save money for your baby is to open a custody account. These types of account allow you to save and invest money on behalf of your child.
Custody accounts come to the next two main varieties:
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Equate gifts to juvenile laws (uga) accounts: Uga accounts can have cash and financial investment. You can open these accounts on behalf of smaller family members in all 50 countries.
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Equate transfer to a minor account (UTMA): Utma accounts can have cash, financial investment, real estate and other types of property. You can open these accounts on behalf of smaller family members, but they are not available in all 50 countries.
These custody accounts do not have annual contributions restrictions, but the IRS imposes a gift tax if you deposit a particular threshold. Federal Tax Limit for Gift Tax for 2025. It amounts to $ 19,000 per individual and $ 38,000 per married couple.
The donation of the deposit certificate (CD) is another option you need to consider whether you are looking for ways to invest money for your baby’s future. CD can be attractive because it offers a fixed interest rate for the entire term (which can range from several months to several years), which can be particularly useful in an environment of interest rates.
The catch is that you have to keep the money you take on the CD on your account until it reaches maturity. Otherwise you will be subject to the early withdrawal punishment.
If you want to give a deposit certificate to your child, you must first open a CD as a guardian account – any utma or uga (see above). This means that your child will not own a CD, at least not until it reaches adulthood. And since adult age is different from the state, the CD transfer procedure to your child after being old sufficiently can differ.
With the uga account, your child should withdraw money with a CD of the age of 18 and 21 (depending on the state of residence). The UTMA account, for comparison, allows you to execute your child at any time as a parent at any time. Once your child (aka user) reaches adulthood (18 to 21, depending on the state of residence), can take control of the CD.
Read more: Can you give a deposit certificate?
As a parent, one of the biggest costs you may need to plan when it comes to your child is their college education. Plan 529 could be a great tool that will help you achieve this goal.
The 529 plan is a tax plan, a flexible savings plan that you can use to pay for educational costs. Parents, grandparents and other family members can also contribute to the 529 plan. In addition, you can invest money in potentially high return funds on behalf of your child, which is a user. In addition, as long as the user uses money for qualified education costs, they will not have to pay income tax.
You may even be able to open a 529 plan for an unborn child if you want to start saving money early. You would technically appoint yourself as a user in this situation and list your child as a user after getting a social security number.
It is also possible to change the user to 529 plans, providing parents greater flexibility than some other savings products. But you should also consider limits of 529 plans (such as the fact that you can only spend money on education costs) before you open this account type.
There is no solution for all sizes when it comes to saving money for your child. Depending on the financial goals you want to achieve, the opening of several types of savings fund for your baby may be the best option.
Keep in mind that it is also okay to look for advice if you are not sure where to start. A reliable financial advisor can help you work through your financial priorities and create a financial plan that makes sense of your family – especially when you are undergoing a major change like adding a new child to your household.
Finally, remember that you do not have to start with a great goal of savings if this is not accessible right now. Even if you can only afford to save a few extra dollars a month for your child, most importantly, creating a savings habit.
