Best Ways To Save Money For Kids: 7 Proven Methods For 2024

Last Updated on July 16, 2024 by John Cirelly

Saving and investing for your child’s future is crucial to giving them a strong financial start. There are various options available, each with its own benefits and considerations.

Below are the best ways to save money for your kids, based on your goals, ability to save, and timeline.

1. Open an Acorns Early Account For Young Children

An Acorns Early account is perfect for young children to start investing early. This account allows you to start with just $5 and set up automatic recurring investments. It offers a diversified portfolio managed by Acorns, which includes a mix of ETFs.

The account comes with a monthly subscription fee of $3, which covers multiple kids’ accounts at no extra cost. It’s ideal for young children as it provides a simple, hands-off way to grow their investments over the long term. Parents also appreciate the educational content and user-friendly interface, which makes it easy to manage.

2. Use GoHenry To Help Kids Save and Learn

GoHenry is a smart tool by Acorns for helping kids learn about saving and spending. It includes a specially designed debit card for children, which can be used to track chores and automate allowances. The card comes with parental controls and real-time spending notifications, making it easy for parents to monitor their child’s spending.

GoHenry is best for children who are ready to learn about money management through hands-on experience. GoHenry’s educational content engages kids and helps build strong financial habits from a young age.

3. Open a High Yield Savings Account for Your Kids

A high-yield savings account is a great way to start saving for your kids. These accounts offer higher interest rates than regular savings accounts, which means your money grows faster. They are flexible because you can deposit or withdraw money at any time without penalties.

Many online banks offer these accounts with no monthly fees. They are ideal for children of any age as they provide a safe place to grow their savings. Investment options are typically limited to cash deposits, but the higher interest rates make them a smart choice for building a solid financial foundation.

4. Purchase Certificates of Deposits For Your Kids

Certificates of Deposit (CDs) are a secure investment option for your kids. They offer fixed interest rates over a predefined term, making them less liquid than savings accounts but with higher returns. You can find average rates ranging from 0.50% for short-term CDs to over 3.00% for long-term ones.

CDs usually come with early withdrawal penalties of 3 to 6 months of interest, so they are best for funds that can remain untouched until maturity. Adults can open CDs for minors using custodial accounts, making them ideal for long-term savings goals for children.

5. Open a 529 Plan

A 529 Plan is a smart way to save for your child’s education. These accounts offer state tax breaks on contributions, tax-free growth, and tax-free withdrawals for qualified education expenses. You can contribute large amounts, with limits varying by state, typically between $235,000 and $529,000.

The funds can be used for tuition, fees, books, supplies, and room and board. It’s a flexible option for children looking to attend college, providing significant tax advantages and helping to ensure that you have the funds needed when it’s time for college.

6. Open a Trust For Your Child

Opening a trust for your child provides long-term financial security and control over how the money is used. Trusts can be revocable or irrevocable, depending on your needs. They are often used for estate planning, education, and special needs.

Setting up a trust can be costly, ranging from $1,000 to several thousand dollars. However, they offer flexibility in investment options, including stocks, bonds, and real estate.

Trusts are ideal for children of any age, especially if you want to set specific conditions for how and when the money is accessed, providing both protection and potential tax benefits for the long term.

7. Open an ABLE Account To Help With Medical Expenses

An ABLE account is a great way to save for children with disabilities. These accounts allow contributions up to $17,000 per year, growing tax-free and offering tax-free withdrawals for qualified expenses. To be eligible, the disability must be diagnosed before age 26.

ABLE accounts don’t affect eligibility for government assistance programs like Medicaid. Many states provide online portals with tools to manage these accounts efficiently. They are ideal for children with disabilities, helping to cover medical expenses and providing financial security without jeopardizing other benefits.

How Do I Invest $1000 For My Child?

Investing $1000 for your child depends on your goals, risk tolerance, and need for liquidity.

For a safe, semi-long-term investment with quick access to cash, a high-yield savings account is best. If you have a higher risk tolerance for larger returns and can wait a few days to access your money, consider investing in a total market index fund, which is good for saving over several years.

For the most security over a long term, Certificates of Deposit (CDs) are reliable, though their returns are lower.

How Much Money Should You Save For Your Kids?

The amount you should save for your kids depends on your financial goals and their future needs. Generally, it’s wise to start early and save regularly to build a solid financial foundation.

Consider aiming for a combination of education funds, like a 529 plan, and general savings or investment accounts. Assess your budget and try to allocate a portion of your income each month towards these goals to ensure you can provide support when needed.

What is The Best Way To Save Money as a Kid?

GoHenry is designed for kids to build strong savings habits and spending discipline. Unlike stashing money in a piggy bank, GoHenry accounts can grow over time with interest.

Kids get a debit card, allowing them to manage their own money under parental supervision and control. This practical experience helps kids learn about budgeting, saving, and smart spending, setting them up for financial success in the future.

Final Thoughts

Saving and investing for your child’s future is an important step to ensure they have financial security. With options like high-yield savings accounts, CDs, 529 plans, and more, you can choose what best fits your family’s needs and goals.

Starting early and being consistent can make a big difference over time. By making smart financial choices now, you set your child up for success in the future.