Best Ways to Invest Children’s Savings

Many parents think about teaching their kids the importance of saving. Indeed, it is never too early or too late to teach them to be financially prepared. Maybe the start of their financial journey is using piggy banks or regular savings accounts. While these options are alright, you should also think about ways to invest your children’s savings.

While saving may be the best way to start your children’s road to financial freedom, it is time to explain to them that investment is the next step to making money work. As parents, our goal is to raise them into responsible adults. And if they know how to invest, they will establish good habits in the future. Looking for ways to invest children’s savings early on will serve as a link to success in the future.

Invest in Your Kid’s College Education

Whether you believe in the value of a college education or not or not, college costs a fortune. By the time your children go to university, it will cost even more. One of the ways to invest children’s savings is to have their money make more money through the compound interest of a college savings plan. Investing in a college fund can help your kids avoid a future filled with paying off debts incurred in tuition fees and other miscellaneous expenses.

While the US remains the world’s most popular destination for international students, it cannot be denied that it’s also one of the priciest. Knowing that makes it tougher for parents to send their kids to prestigious schools. However, you can use the money in their savings account to acquire an educational plan, which is one of the ways to invest children’s savings.

In this case, opening a 529 Plan is recommended. 529s are savings plans, usually sponsored by state governments, that encourage saving for future education costs. They often are tax-friendly, in the sense that many states will let you deduct your contributions from your state income tax – and when you withdraw the money for college, the money won’t be taxed. You can securely save the money into your own state’s 529 or any other state’s plan.

By the time the fund matures, it will be enough to cover their college years, and you don’t have to worry about the financial burden. The important thing to do is to keep putting in money to your child’s 529 every year and every month. A well-tracked 529 plan is one of the effective ways to invest children’s savings.

Teach Your Child to Save Up and Invest in Stocks

Buying stocks is another way to invest children’s savings. Let’s say you have ten years to prepare financially for their future, putting their money long-term at high risk, but high-interest stocks mean their funds will grow at higher rates too. You can purchase stocks directly from selected companies or even online. Some still offer physical certificates that recognize stock purchases.

Stocks also pay attractive dividends since giant companies make a lot of money. They’ve been in business for 20 years or more and have good balance sheets. You can stir your kids’ interest by directing them that they could own a portion of Google or Coca-Cola. Stocks are very safe and stable. They are a highly recommended profitable way to invest children’s savings.

Putting some money in shares is also a smart way of investing children’s savings because, unlike investment bonds, you will have complete control over where your kids’ money is invested and in what companies. Just like having a simple savings account, you can help improve your children’s financial literacy by involving them and learning the process.

You can open a share for your children via a custodial account on Etrade. You can handle your children’s accounts under your name until they reach legal age. By putting money in shares to invest in children’s savings, they will acquire higher yields the sooner they start investing.

Get An In Trust For (ITF) Savings Account

One of the ways to invest children’s savings worth mentioning is the In Trust For (ITF) savings account. This is an arrangement where you will open and manage the savings account on behalf of your kids. If you die, your children will automatically become account owners. But if your kids are still minors at the time of your death, a guardian or trustee will be appointed to oversee the savings account.

Sometimes, the age at which kids can take over the ITF savings account depends on the bank or the particular deposit product opened for such intention. Some banks allow kids as young as 13 to own their accounts. However, there are also instances when the child can take over his account at 18. When this happens, the bank will require proof of birth like a birth certificate and valid IDs; this is how ITF runs in transferring the possession of money to your kids and one of the ways to invest children’s savings.

Option For Money Market Accounts

When considering investing in children’s savings, you may consider money market accounts. They are similar to savings accounts except that they offer higher returns. You can open a money market account at a local bank or online. After that, you can access your money via an automated machine account (ATM) or through web-based account management.

Because money market accounts are uncomplicated to use and can be withdrawn at any time, this is one of the ways to invest children’s savings. Be mindful, though, that sometimes money market fees could weaken your returns. So, as with any other investment strategy, you should first negotiate and compare fees and features before deciding which is the most feasible to keep your kids’ savings.

Look for ways to invest children’s savings and make your kids’ money work with compounding. Compound earnings are the additional interests from the yield (or return) earned from the investment. So the earlier you start to invest your kids’ money, the more benefit they earn and learn from compounding.

Previously published at Wealth of Geeks.

By Joseph Hogue