Children enrich our lives so much, but they don’t come cheap! From providing your child with basic needs, to paying for their endless must-haves, to securing their futures, the expenses involved in raising your child can really add up.
Fortunately, there are ways to save up for your child’s future to make this more manageable.
Let’s look at several popular savings options you can open for your kids, along with the benefits and factors to consider for each.
- 529 Savings Plans
A 529 plan is a tax-advantaged plan designed to encourage saving for future education costs.
Benefits:
- Earnings grow tax-deferred, and withdrawals for qualified education expenses are tax-free. Some states also offer tax deductions, or credits, for contributions to their own state’s 529 plan.
- High contribution limits.
- Flexible use of funds.
Considerations:
- Various investment options available, which may include portfolios that become more conservative as the beneficiary approaches college age.
- The account owner of a 529 plan has full control over the funds.
- High-yield Savings Accounts
High-yield savings accounts offer higher interest rates than traditional savings accounts.
Benefits:
- Higher interest rates than most savings accounts.
- Funds are typically insured up to $250,000 per depositor, per institution.
Considerations:
- High-yield savings accounts are usually available online, making them easy to manage.
Interest rates can fluctuate based on market conditions.
- Money Market Accounts
Money market accounts combine features of savings accounts and checking accounts.
Benefits:
- Higher interest rates than regular savings accounts.
- Increased liquidity and accessibility through check-writing and debit card options (with some accounts).
Considerations:
- Money market accounts often have higher minimum balance requirements.
- There may be limits on the number and types of transactions you can make each month.
- Custodial accounts
Custodial accounts allow an adult, or “custodian,” to transfer assets to a minor without the need for a trust.
Benefits:
- These accounts can hold various types of assets, including cash, stocks, bonds and mutual funds.
Considerations:
- Earnings are taxed at the child’s tax rate.
- Once the child reaches the age of maturity, they gain full control over the account.
- Share Certificates
Share certificates are term-based savings accounts that offer a fixed earnings rate for a specified term, ranging from a few months to several years.
Benefits:
- Returns are fixed, making share certificates a risk-free investment.
- Higher interest rates than regular savings accounts.
Considerations:
- Early withdrawal penalties.
- Limited liquidity.
Kids don’t come cheap! Use this guide to make an informed decision about choosing the perfect savings account for your child. Visit our Progressive Savings Account page to learn more about our rates and how we can help you save to build your child's future!