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Resources > Investing for Children > Investment Accounts for Kids—Best Options for Long-Term Investments

Investment Accounts for Kids—Best Options for Long-Term Investments

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While investing may not be your child’s main priority, teaching them about the importance of investing early on can benefit them in the long run. By opening an investment account for your child, you can help them save up for college as well as living expenses once they become young adults, reducing their need to obtain loans.

In this guide, we’ll introduce you to various investment accounts for kids, show you how to open an investment account for your child, and provide additional investing options to help secure a solid financial future for your child.

Benefits of Investing for Kids

An obvious benefit of opening an investment account for kids is the chance to earn interest on their investments so that your child may eventually end up with more money than they invested. What’s more, research shows that young people who start savings or investment accounts from an early age typically have a positive relationship with financial institutions, are more likely to diversify their financial portfolios, and usually accumulate more assets throughout their lifetime.

Besides this, investing for children is also highly beneficial because:

  1. It teaches your child about investing
  2. It allows money to accumulate
  3. It reduces the need for student loans

Teaching Your Child About Investing

Helping your child invest while they’re still young is a great way to increase their financial literacy. Through investing, you can teach them about financial concepts like money management and compound interest so they can make smarter financial decisions once they grow up. 

Opening an investment account for your child also gives you a chance to teach them how the stock market works, providing them with knowledge they can later use to build long-term wealth.

Allowing Money To Accumulate

Starting an investment account for kids early allows them to get more compound growth. Even if their contributions are small, they’ll accumulate over time, resulting in thousands of dollars in savings by the time your child reaches young adulthood. 

Here’s how much your child would earn if, for example, you opened a child investment account when your child was a one-year-old and you had an 8% annual return:

Monthly ContributionBalance When Your Child Is 18Balance When Your Child Is 25

Reducing the Need for Student Loans

The average cost of college in the U.S., including books, supplies, and daily living expenses, is $36,436 per student per year. According to the table above, this means you may be able to help your child cover the majority of their college expenses by putting $50 in their investment account every month from birth until they turn 18. That way, you’ll reduce their need for student loans and help them avoid having to pay off debt in the future.

5 Best Investment Accounts for Kids

While your child may not be able to open any investment accounts for minors since these usually have age restrictions, there are several investment accounts you can open on their behalf. Some of these are savings accounts, but you can also use them for investing. Although your child won’t directly be the one making investments in this case, it’s still a great way to educate them about investing while collecting funds for their future. 

The best investment accounts for kids you can choose from include: 

  1. Custodial Roth IRA
  2. UGMA/UTMA custodial accounts
  3. Coverdell ESA
  4. 529 education savings plans
  5. Brokerage accounts

Custodial Roth IRA

A custodial Roth IRA is a retirement account managed by an adult—a parent or a guardian—on behalf of a minor. To qualify for this account, your child must earn an income from a part-time job like tutoring or housesitting, but there’s no age limit as long as an adult is managing the account.

If you open a custodial Roth IRA for your child, you’re supposed to manage it until they reach legal age. All the contributions to the account grow tax-free, and your child can use them for major expenses like a car or an apartment after you’ve funded the account for at least five years. As for earnings from investments, your child can only withdraw these without any penalties for education-related expenses.

UGMA/UTMA Custodial Accounts

The Uniform Gift to Minors Act and Uniform Transfer to Minors Act (UGMA/UTMA) are custodial accounts you can open on behalf of your child and act as a custodian until they turn your state’s legally appointed age (from 18 to 25). The main difference between the two accounts is that:

  • UTMA allows you to contribute almost any type of asset
  • UGMA contribution options are limited to cash, insurance policies, and securities

Any contributions you make to either account are seen as irrevocable gifts to your child as the beneficiary. What’s more, you can help your child invest money in stocks, bonds, or mutual funds to grow the account balance, as well as invite family members to make contributions to the account.

Once your child takes control of the account, they can use the collected funds for anything that benefits them, meaning that these accounts aren’t only used for education expenses.

Coverdell ESA

A Coverdell education savings account (ESA) is designed to help you save for your child’s education, including elementary and secondary school expenses, as well as college costs. Contributions to this account grow tax-free, and withdrawals are also tax-free if used for education expenses like college tuition and fees, supplies, or books.

Coverdell ESA accounts are only available to individuals with an adjusted gross income lower than $110,000 (or $220,000 if filing jointly) and allow a maximum contribution of $2,000 a year. Additionally, the beneficiary must be 18 when the account is opened, and they must withdraw all funds by the time they turn 30.

529 Education Savings Plans

529 plans are the most popular U.S. education savings accounts. Unlike Coverdell ESA, they have no annual contribution limits or age requirements for opening an account. These accounts allow your child to invest in their higher education through one of two options:

  1. Prepaid tuition plans—These let the account holder purchase units or credits for the beneficiary to use for future college-related expenses
  2. Education savings accounts—These let you invest in various mutual funds and exchange-traded funds (ETF) and use the funds for qualified college expenses

There’s no tax on the withdrawals as long as your child uses them to cover education costs. Depending on your state, you may be eligible for a tax deferral, income tax deductions, or tax credits for your contributions to a 529 plan.

Brokerage Account

Brokerage accounts are great investment accounts for teens since some of them are specifically designed for teenagers. They allow children to purchase stocks, bonds, mutual funds, and EFTs for various investment options, and they include minimal fees. Unlike the other investment accounts for kids, brokerage accounts like Fidelity give ownership to your child instead of you.

If you don’t feel comfortable with letting your child invest on their own yet, you can also open a brokerage account in your name and use it to invest in your child’s future. This way, you’ll maintain control over the account even when your child becomes an adult, helping you ensure the money is used for its intended purpose. 

Brokerage accounts are also flexible regarding withdrawals since they don’t limit the use of the funds to college expenses only—instead, your child can use the money they earned through investments in any way they want.

How To Open an Investment Account for a Minor

Before opening an investment account for kids, you should decide on the type of account that best fits your child’s needs. For example, if your child’s goal is to save money for college, you may choose the Coverdell ESA or 529 plans. Meanwhile, if your child has taxable income or wages, you may consider a custodial Roth IRA.

The process of opening the account will depend on the investment account you choose, but it generally takes up to 15 minutes, and you can typically create an account online. Here’s how it usually works:

  1. Open the account—Visit the broker’s website and provide the information they request. If you’re opening an account on your behalf, you’ll likely have to provide your name, contact information, and Social Security number (SSN). However, for a custodial account, you’ll also need to provide your child’s information like their SSN and date of birth
  2. Fund it—To fund the account, you’ll have to connect your bank or another brokerage account to the investment account so you can transfer the money. During this process, you may be asked to supply personal information like your employment details
  3. Invest—After you’ve funded the account, you and your child can decide together where to invest the funds. If you settled on a brokerage account, for example, you can explore various stocks, mutual funds, and exchange-traded funds

How To Invest as a Kid—Alternative Options

If none of the investment accounts for minors above fit your needs or you’re looking for other ways to help your child invest in their financial future, you may consider the following options:

  1. High-yield savings accounts
  2. Savings bonds
  3. Certificates of deposit
  4. Credit building services

High-Yield Savings Accounts

A high-yield savings account rewards you with a higher interest rate than traditional savings accounts, meaning that your child’s money can grow faster. However, the interest rate is variable and changes following the Federal Reserve benchmark rate.

These are savings accounts rather than investment accounts, so your child’s money isn’t at risk—they can withdraw it whenever they like and use it for anything they want. Still, most of these accounts are available to children aged 18 or older.

High-yield savings accounts are a good option if you give your child an allowance. These accounts allow them to keep all their money in one place and are encouraged to think about how much to save, spend, or donate.

Savings Bonds

Savings bonds are high-safety loans issued by the government that come in two types: 

  1. EE bonds—Offer fixed rates and predictable returns
  2. I bonds—Offer inflation-adjusted return

Both kinds of bonds offer interest for a bond term of up to 30 years, and you can typically buy them for as little as $25. Savings bonds are a safe option because they’re backed by the credit of the federal government. They’re also a good long-term investment for a child since they risk losing some interest if they cash in the bonds in less than five years after your purchase.

Certificates of Deposit

Certificates of deposit (CDs) are an alternative to savings accounts, and they typically have lock-up periods that require your child to leave the invested money in the account during an agreed-upon period. If they withdraw funds before that period ends, they could lose some interest or have to pay a fee. This is why CDs are great if you want to encourage your child to invest and save for expenses that are several years down the line.

These accounts are a safe investment for kids because they:

Credit Building Services

While credit building services aren’t investment accounts for minors, they’re the best way to invest in a stable financial future for your child. An early start at credit building can help your child potentially save over $200,000 during their lifetime by increasing their chances of obtaining loans with favorable terms and interest rates. This makes it easier for them to:

  • Obtain rental housing
  • Secure financing for a vehicle
  • Get a credit card
  • Receive better job offers

A great way to help your child start their credit building journey early is to subscribe to a platform like FreeKick. This service allows children to establish a good credit score with the help of their parents, starting as early as the age of 13.

FreeKick—Premium Credit Building and ID Protection

FreeKick is an FDIC-insured deposit account and subscription service provided by Austin Capital Bank that offers parent-sponsored credit building services to young adults and minors aged 13 to 25. The platform also provides identity monitoring and protection services for the whole family of up to two adult parents and six children.

Build Your Child’s Credit Early With FreeKick

The CARD Act of 2009 makes it challenging for teens and young adults to build credit because it doesn’t allow anyone under 21 to obtain a credit card. While you can add your child to your credit card to help them build credit, their credit history will be lost as soon as you remove them from your card.

FreeKick circumvents this limitation by letting children as young as 13 establish a strong credit score through the parent-sponsored credit building service. Here’s how to get started: 

  1. Create an Account—Visit FreeKick.bank and choose a plan that best fits your family’s needs and budget
  2. Set It and Forget It—When the account is activated, FreeKick will automatically start building your child’s credit over the next 12-month period
  3. Keep Growing—After the first 12 months pass, you can either renew the account and keep building your child’s credit or close it and get a refund of your initial deposit

Keep Your Child’s Identity Protected With FreeKick

Besides helping your child invest in their future, you should also ensure their investment account and credit score are safe from identity theft since alarming data shows that a child’s identity is stolen every 30 seconds.

To keep your child’s sensitive information out of harm’s way, FreeKick offers comprehensive identity monitoring and protection features for both adults and minors. Here’s what the service includes:

Services for Adult Children and ParentsServices for Minor Children
Credit profile monitoring
SSN monitoring
Dark web monitoring for personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Lost wallet protection
Court records monitoring
Change of address monitoring
Non-credit (Payday) loan monitoring
Free FICO® Score monthly
FICO® Score factors
Experian credit report monthly
Credit profile monitoring
SSN monitoring
Dark web monitoring for children’s personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Sex offender monitoring—based on sponsor parent’s address

FreeKick Pricing

Regardless of your family’s needs, FreeKick offers a plan that fits your budget, and both available plans are FDIC-insured up to $250,000. Find more details in the table below:

FDIC-Insured Deposit AmountPlan Fee
$3,000$0 (Free)
No deposit$149/year

Help your child lay a solid financial foundation with early credit building and protect your whole family from identity theft—sign up for FreeKick today.

Freekick provides a double dose of financial empowerment and security for your whole family. It helps teens and young adults build strong credit profiles and offers identity motoring for up to two adult parents and six children under 25.

Freekick: ID Protection & Credit Building

Protect Your Family’s Identities
Safeguard up to 2 parents & 6 children
Build Your Child’s Credit
Build credit for your children ages 13-25. Good credit can save them $200,000 over their life!
Pay $0 A Year
Make a one-time deposit of $2,500 or pay $149/year with no deposit
Powered by Austin Capital Bank
FreeKick is a combination of a FDIC-insured deposit account, credit building, & identity monitoring services

Get 10% off on the first 3 monthly payments

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