As a new parent there are many details to plan. Yet saving for the future of your child is an important financial responsibility that you may want to prepare sooner instead of preparing later.
The good news is that there are many options available for starting a savings fund for your baby. And even if you only have the opportunity to store a few extra dollars every month, making a consistent habit to save for your child over time yield great benefits.
When you are ready to save cash for the future of your baby, you may want to consider setting up a designated separate account to retain the money. The best savings funds for babies and children have above -average declarations, low costs and potential tax benefits.
Here is a glance at four smart ways to start a savings fund for a baby, depending on your goals.
Opening a savings account for your baby can be an easy, low risk way to store cash for the future of your child. So if you plan to open a savings account for a child, you may want to consider whether a high-yield savings account (HYSA) may fit well with your goals.
High-yield savings accounts are deposit accounts that generally offer above-average interest rates compared to traditional savings accounts but no less than 10 times the national average. And if you open a HYSA with an FDIC insured bank, you can trust that your deposits are safe (up to $ 250,000 per depositor, per account owner category).
One disadvantage: high -interest savings accounts are supplied with variable interest rates that can go up and down with market conditions. Moreover, despite competing rates compared to other types of deposit accounts, they still do not correspond to the return that you can achieve by investing in the market.
High-Yield savings accounts are often found at online banks, but you must also contact traditional banks and credit associations. It is wise to compare multiple HYSA account options to ensure that you find the best rates and account conditions that are available.
Read more: The 10 best high-yield savings accounts that are available today
Another way to save money for your baby is to open a storage account. With these types of accounts you can save and invest money on behalf of your child.
Catering accounts will be included in the following two main varieties:
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Uniform gifts to Minors Act (UGMA) Accounts: UGMA accounts can have cash and financial investments. You can open these accounts on behalf of a minor family member in all 50 states.
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Uniform transfers to Minors Act (UTMA) Accounts: UTMA accounts can possess cash, financial investments, real estate and other types of real estate. You can open these accounts on behalf of a minor family member, but they are not available in all 50 states.
These storage accounts do not have annual contributions, but the IRS does impose a gift tax if you deposit over a certain threshold. The federal limit for gift tax for 2025 is $ 19,000 per individual and $ 38,000 per couple.
Donate a certificate of deposits (CD) is another option to consider if you are looking for ways to invest money for the future of your baby. A CD can be attractive because it offers a fixed interest rate for the entire term (which can vary from a few months to a few years), which can be particularly favorable in a falling interest environment.
The catch is that you have to keep the money that you deposit on a CD on the account until it reaches the term. Otherwise you will be subject to an early withdrawal fine.
If you want a deposition of deposition to your child as a gift, you must first open the CD as a storage account – a Utma or Ugma (see above). This means that your child does not own the CD, at least not until they reach adulthood. And since the age of maturity is varies per state, the process of transferring the CD to your child can differ as soon as they are old enough.
With a UGMA account, your child should withdraw the money from his CD between the ages of 18 and 21 (depending on the state of residence). In comparison with a UTMA account, as a parent you can make recordings for your child at any time. As soon as your child (also known as the beneficiary) reaches maturity (18 to 21, depending on the residential state), they can take control of the CD.
Read more: Can you give a certificate of deposits as a gift?
As a parent, one of the biggest expenses you might have to plan when it comes to your child their university education. A 529 plan can be a great tool to help you achieve that goal.
A 529 plan is a flexible savings plan for tax processes that you can use to pay for education costs. Parents, grandparents and other family members can also contribute to the 529 plan. Moreover, you can invest the money in potentially high return stock funds on behalf of your child, who is the beneficiary. Moreover, as long as the beneficiary uses the money for qualified education costs, they do not have to pay taxes for profit.
You may even be able to open a 529 plan for an unborn child if you want to save early money. Technically, in this situation you would call yourself as a beneficiary and mention your baby as a beneficiary once they have received a Sofi number.
It is also possible to change the beneficiary to 529 plans, which means that parents have more flexibility than some other savings products. But you must also take into account the limitations of 529 plans (such as the fact that you can only spend the money on education costs) before you open this type of account.
There is no one-size-fits-all solution when it comes to saving money for your child. Depending on the financial goals you want to achieve, it might be the best option to open more than one type of savings fund for your baby.
Keep in mind that it is also great to ask for advice if you are not sure where to start. A trusted financial adviser can help you go through your financial priorities and prepare a financial plan that is logical for your family – especially when you are undergoing a major change, such as adding a new child to your household.
Finally, remember that you don’t have to start with a huge saving goal if this is not affordable now. Even if you can afford to save a few extra dollars per month for your baby, creating the habit of saving is the most important.
