The expenses inherent with raising a child can take both rookie and veteran parents by surprise. To help ease these costs, various types of savings accounts are available that are designed for even the newest members of the world -- infants. The savings account that is best for your new baby will depend a lot on your circumstances, including the amount of money available for savings and the ease in which you want the money to be accessed.
Consider a traditional savings account either at the local bank or online specifically designed for babies and toddlers. These accounts may require a minimum investment amount but won't cost you any sleep, considering the low risk associated with federally insured savings accounts. And while there may be fees tied to excessive withdrawals, banks may lift regular service fees as an incentive. There's not much you can do about the underlying interest rate, but you'll still want to shop around for the highest rate available.
New parents are often strapped for cash, so you might want to open a savings account at a credit union, which foregoes fees and whose account minimums tend to be the lowest around. One risk is you may be tempted to withdraw funds more than you otherwise would because you won't face excessive withdrawal fees. To discourage this, you can be given the option to adjust the terms to require additional steps before withdrawals are made. Another option is to put your money in certificates of deposits, where it will have to sit for a specific period of time unless you want to pay a hefty early withdrawal penalty.
College Savings Plan
If you have high educational aspirations for your child, consider an investment savings vehicle such as a 529 college savings plan, which can be started on behalf of infants. A key benefit is that plan earnings won't be taxed -- as long as funds are eventually directed toward educational resources. Otherwise, Uncle Sam will attach a 10% tax on withdrawals. Funds can grow at a rate of 3% to 4%, according to a 2012 article on the Fox Business website. In most states, you'll get a deduction on your state taxes as well.
A custodial account is another way to begin saving for your newborn. It can be done with a broker or financial adviser. It falls under the Uniform Transfers to Minors Act, or UTMA, and Uniform Gifts to Minors Act, or UGMA. You'll have control over the way the funds are invested, and you aren't limited by investing in education. But you must relinquish control of the account balance to your child when she is no longer considered a minor at age 18 or 21, which is determined by the state in which you reside.
- Parents: How to Get a Savings Account in Place for Baby's Future
- Fox Business: How to Invest for Your Baby
- The Wall Street Journal: Ready or Not, Your Kids Own the Money
- Wells Fargo: When Your Child is Age 0-4
- IRS: 529 Plans: Questions and Answers
- Minnesota Valley Federal Credit Union: Newborn Savings