Personal Finance

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Best interest earning savings account for kids

Posted Jul 29 2022, 17:41

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?

Detroit, Michigan

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David M.
  • Morris County, NJ
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David M.
  • Morris County, NJ
Replied Jul 29 2022, 20:02

@Brittany Snyder

I'd put it into an IRA or Roth IRA account. lots of options to get better growth/income and also be tax advantaged.

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Joel Allen
  • Rental Property Investor
  • San Antonio, TX
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Joel Allen
  • Rental Property Investor
  • San Antonio, TX
Replied Jul 30 2022, 04:01

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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Chris Seveney
  • Investor
  • Northern Virginia
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Chris Seveney
  • Investor
  • Northern Virginia
Replied Jul 30 2022, 04:06

@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.

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Maria Fortner
  • Real Estate Broker
  • Auburn Hills, MI
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Maria Fortner
  • Real Estate Broker
  • Auburn Hills, MI
Replied Aug 2 2022, 06:03

@Brittany Snyder treasurydirect.gov purchase an i-bond, do your research. I believe the interest rate now is somewhere between 9-11%