Best Kids Bank Accounts: What Iowa Parents Need to Know

Opening a savings account for your child puts them on the path to financial independence and teaches them the value of hard work. Iowa parents have several strong local options, including Bank Iowa, which offers special incentives for young savers. Understanding the tax rules and choosing a reliable local institution over a trendy fintech app can save families from future headaches.

Why Open a Savings Account for Your Child?

A savings account introduces youngsters to the concept of putting money away and helps them learn about ideas like compound interest. Children can deposit money from birthdays, holidays, chores, allowances, and eventually part-time jobs. Banks and credit unions offer special accounts geared toward children, usually requiring a small initial deposit of $25 to $100.

Meg McIsaac, president of Massachusetts-based Bluestone Bank, says the ultimate goal is long-term financial wellness.

One of the key points of opening a savings account for children is to put them on the path toward financial wellness as an adult.

What Should Iowa Parents Look for in a Kids Account?

Accounts for kids under 18 differ from traditional savings accounts. They must be co-owned by an adult, usually a parent, grandparent, or guardian. When shopping around, parents should look for accounts with no monthly fees and strong educational tools.

McIsaac recommends prioritizing local institutions over online-only options if hands-on learning is a priority.

With a little shopping around, free accounts and services can be found near where you live. If in-person service is important for your child to learn about financial services, avoid internet-only banks.

Trisha Menke, retail banking director at Bank Iowa, stresses the importance of choosing a bank committed to your child's financial education. Bank Iowa gives a copy of the book Eleanor Saves the Day to every kid who opens an account. The illustrated book, produced by Bank Iowa, centers on a young entrepreneur who wisely saves and invests her money.

How to Open a Bank Account for a Child

You may want to open the account at a bank or credit union that operates local branches. Visiting a bank in person, from opening the account to interacting with a teller for deposits and withdrawals, could be a vital part of a youngster's financial education.

When you open the account with your child, you will need a government-issued ID for yourself, such as a driver's license or passport. For your child, you may need to present a birth certificate. If you are opening an account at a credit union for the first time, you may also need to meet membership requirements to join.

McIsaac notes that the choice of a bank is often a long-term decision, so it pays to put effort into making the best choice upfront.

It takes a lot of effort to change where you bank, so put effort into making the best choice. Many account holders remain with their original banks or credit unions for decades.

Why Avoid Trendy Fintech Apps for Kids?

While smartphone banking apps might seem appealing to tech-savvy kids, Menke warns that the choice of a financial institution now could carry long-term consequences. She urges parents to stick with established institutions that will be around when their children need major loans.

Who your child banks with today may very well be who they bank with tomorrow. Fintech companies are cool, but will they be around long enough to see your kid through those early financial milestones when their credit file is still thin, such as a car loan, student loan or even their first home?

What Are the Tax Rules for Kids Savings Accounts?

Interest earnings for a children's savings account are subject to income tax if they exceed a certain amount. If your child's interest, dividends, and other unearned income total more than $2,200 in one year, the unearned income might be hit with federal taxes. This income can be reflected on your child's tax return or on your own tax return.

Because of these tax implications, using a traditional savings account to put aside money for a child's college education is not the wisest financial move. Instead, parents should consider a savings plan dedicated to college expenses, known as a 529 plan, which offers significant tax advantages.

Do kids bank accounts require an initial deposit?

Yes, most banks and credit unions require an initial deposit to open a kids savings account, typically ranging from $25 to $100.

Can a child open a bank account by themselves?

No, kids under 18 cannot open a bank account on their own. An adult, such as a parent or guardian, must co-own the account.

Are kids bank accounts taxed differently?

Interest is taxed similarly to adult accounts, but if a child's unearned income exceeds $2,200 in a year, it may trigger federal taxes at the parent's rate, often called the