A child can have a bank account. The harder part is picking the right kind and knowing which rules apply where you live. This guide covers the two common setups, the paperwork, the choices, and the questions to settle before you sign anything.
It does not give legal or tax advice. Several details depend on your state, and the sources behind this piece leave real gaps. Those gaps are named below so you know what to check.
Custodial or joint: the two common setups
Most families end up choosing between a custodial account and a joint account. A custodial account belongs to the child but is managed by an adult until the child reaches a maximum age. That age can vary by state. A joint account is co-owned, and the adult and the child both have a hand in managing it.
The practical differences show up in daily use. A joint account can be a savings or checking account, and a parent can often set rules and limits on how it is used. Custodial accounts may also be able to hold assets such as stocks and bonds, according to one bank's published guide.
What the sources do not explain is the legal side. They do not lay out who owns the money in each case, or what responsibilities the adult takes on. Ask the bank to explain this in plain terms, and consider asking a lawyer if the amounts are large.
Check your state before you go
Rules for opening accounts for minors are set by states, and they differ. The Conference of State Bank Supervisors (CSBS) publishes a state-by-state map of these requirements. Use it as a starting point, not a final answer.
The catch is the date. The CSBS map rests on a survey completed in July 2016, and state laws may have changed since then. CSBS itself suggests that depository institutions consult their own legal counsel and state regulator for current requirements. A parent can do something similar by asking the bank which state's rules it applies and then confirming with the state banking regulator.
None of the sources supplied here state the age of majority or the maximum custodial age for any specific state. Do not guess. Look it up for your state and write the answer down.
Documents and steps
The process is usually short. Pick where the account will be held, gather documents, and set the account details. Bring the following, and expect some variation by institution:
- The adult's government-issued photo ID
- Identification for the minor, such as a passport, birth certificate, or Social Security card
- Full legal names and birth dates for everyone on the account
- Current contact information
You can often open the account in person or online. A branch visit helps a first-timer learn how things work, and some banks may not offer online applications for minors. Some branches may also want an appointment, so call ahead. The sources do not say what online applications require or how identity is checked remotely, so confirm that before you start.
Depending on the account type, you may also set limits. Withdrawal limits and spending parameters are examples. Decide what you want before you sit down, because it is easier than deciding on the spot.
Choosing where to bank
You have a few kinds of institutions to consider. Traditional banks and credit unions often have branches, sometimes on or near campus. Online-only banks usually have no branches, though some offer checking accounts that let you use other banks' ATMs, according to the Consumer Financial Protection Bureau (CFPB).
One simple option is the bank you already use. Transfers are quick, and you avoid juggling several apps and logins. That is a convenience, not a rule, so compare before you commit.
Insurance matters more than most features. The CFPB advises keeping savings in a federally insured bank or credit union. The sources supplied here do not explain how deposit insurance applies to accounts held for minors, so ask the institution directly and check the FDIC or NCUA for the specifics.
For emergency savings, the CFPB's teen guidance suggests the interest rate may matter less than having the money available when you need it. The sources also say nothing about fees, minimum balances, or rates on minors' accounts. Ask about all three.
Saving habits worth building
An account is only useful if money goes in. The CFPB gives a common guideline for teens with steady jobs: direct at least 10 percent of earnings into savings. It also suggests keeping at least three months of living expenses for emergencies, and six to nine months where possible.
Those numbers are written with older teens in mind. For a younger child, a smaller target is fine. Pick a number the child can see growing.
There is also a cost to going without. The CFPB notes you do not need a bank account to receive student loan money, but cashing a check without one could cost you. An account can also speed up access to funds and make it easier to manage money electronically.
Taxes are another gap. The sources do not explain how a minor's account or the income in it is taxed. Check with a tax professional or the IRS if the account will earn meaningful interest or hold investments.
Questions to ask before you sign
Bring a short list to the bank. Write down the answers.
- Which state's rules apply, and what is the maximum age for a custodial account there?
- What documents do you need for the minor and for the adult?
- Can I open the account online, or must I go to a branch?
- What withdrawal limits or spending parameters can I set?
- Is the account federally insured, and how does that apply to a minor's account?
- What fees, minimum balances, and interest rates apply?
Two warnings are worth repeating. Do not rely on state requirements that may be out of date, including the 2016 CSBS survey. And do not assume the first answer you hear is the final one. Confirm anything that affects ownership or control of the money with your state regulator or a qualified adviser.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
