Nowadays, more and more children and teens are understanding the importance of responsible money management. It is important to try to establish good habits from an early age – learning to save money and budget early on can ensure tremendous financial management in adult life. Understanding spending and saving your own money can also help you determine how you want to spend your money in the future. Once you begin to earn money, it is good to consider how you will manage it, and keep track.
The easiest way to access your money and check your balances regularly is by opening a bank account. However, opening a bank account as a minor comes with additional provisions and regulations. Each state varies when it comes to laws regarding bank accounts for individuals under 18. Additionally, corporations differ when it comes to their regulations and details for opening these accounts. When deciding to open an account before you turn 18, it is important to consider what makes the most sense for you financially, and ensure you are following the appropriate laws in your state and bank of choosing.
When determining the bank or credit union you would like to open your account at, there are a few things to keep in mind. First, you will want to look for accounts that have little to no fees associated with the account. This will help to avoid any hidden costs you may not otherwise be aware of until after you’ve opened the account. Additionally, finding an account option with a competitive interest rate will help you in the long run. Earning interest on the money you keep in your account can add up quickly!
To fully understand the details of any accounts you may be interested in opening, it is worthwhile to visit the banks or credit unions and have a conversation with an advisor. They will be able to give you the full details of opening any account at their location, which gives you the opportunity to compare multiple options fully.
Once you are sure you meet your state requirements for opening a bank account and have determined which bank you would like to open your account with, you will have the option to open a few different types of accounts. Nearly every bank or credit union will have at least two options available: a joint account, or a custodial account.
Joint Accounts
Joint accounts require the minor looking to open a bank account to have at least one accompanying adult linked to said account. This gives both the minor and the adult access to the bank account details, and gives the adult the ability to monitor and regulate the account. Under this supervision, the adult on the joint account can limit spending activity, determine a maximum withdrawl amount, and actively monitor transactions on the account. Depending on the bank or credit union you are opening an account with, a joint account may take on different names – “Youth Savings Account”, “Teen Checking Account” and more may be used to personalize a joint account program.
It’s important to note that with a joint bank account, the adult has the ability to fully withdraw and manage 100% of the money in the account without the knowledge or consent of the minor. Before opening a joint account, be sure to establish expectations for the account with everyone who has access. This can help to avoid confusion or frustration when managing the account’s finances down the line.
Custodial Accounts
Just like Joint accounts, custodial accounts require an adult to accompany a minor opening a bank account. Custodial accounts are the property of the minor opening the account. However, these accounts are managed by the parent or guardian until the child turns 18 (or older, depending on the details of the account). Until this point, the minor cannot directly access the money held in the account, and all transactions and withdrawals must be made by the adult in charge. Once the owner of the account has reached their 18th birthday, they are in full control of the account.
Using a custodial account requires the managing parent or guardian to make decisions on behalf of the account. Additionally, it is the managing adult’s legal obligation to utilize the account for the benefit of the minor that owns the account. This means the adult in charge cannot buy personal items for themselves using the account – it’s purpose is for the benefit of the minor who owns it. When the individual who owns the account turns 18, they are solely responsible for the money in the account, and they have full autonomy over financial decisions related to the account.
The Bottom Line
Opening a bank account before you turn 18 is a great way to learn about the importance of saving money, and planning ahead for your future. Though there are more requirements to open a bank account as a minor, you have multiple options available to you that can fit your individual needs. Decide what makes the most sense when it comes to where you want to open your account, and what kind of account will work best for you. After you’ve successfully opened your account and have had it for a while, you can start to plan how you would like to hold your money in the future and potential accounts you can open going forward.
After you reach your 18th birthday, it is a good idea to return to your bank or credit union and meet with an advisor to discuss any account transitions that might be taking place. Here, you can talk about any potential accounts that may interest you, such as opening a new savings account. You can get a better idea of how to manage your finances as an adult and set yourself up for long-term financial success.
Taking the time to learn and understand banking activities is one of the most responsible things you can do at a young age. Be proud of yourself for taking this important step towards your financial independence!
