Best interest earning savings account for kids
My 15 year old son just got his first job! We could put a portion of his paychecks in a savings account at our local credit union but is there a better option with a higher interest rate where his money will grow?
I'd put it into an IRA or Roth IRA account. lots of options to get better growth/income and also be tax advantaged.
One of my daughters is getting close to that age, and my plan for her once she begins having an earned income is exactly what David recommended….a Roth IRA. It will likely need to be set up as a custodial Roth IRA at first, but then will convert to your son when he turns 18 or 21 (depending on the state).
Your son can put up to $6,000 per year in the Roth. With a Roth, taxes are paid up front…and your son’s current tax rate will likely be much lower now than when he begin to withdraw the money later in life.
One other benefit, if your son plans to attend college. A Roth IRA (along with other qualified retirement accounts) is not counted as an asset as part of the FAFSA, while a savings account is…which could impact eligibility for financial assistance.
Note: I’m not a financial advisor, and I didn’t stay at a Holiday Inn last night. But it’s the plan I intend to use for my own children.
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@Brittany Snyder
If you need the money for liquidity a credit union is probably the best place. If it's not needed for liquidity you can do an ira or a sled directed ira and invest it. There are funds out there that target 8% with low min investments similar to REIT's that invest in real estate.
@Brittany Snyder treasurydirect.gov purchase an i-bond, do your research. I believe the interest rate now is somewhere between 9-11%