Let’s be honest—kids don’t stay little for long. One minute, you’re teaching them to tie their shoes. The next? They’re asking about college, cars, or starting a business.Planning for your child’s future can feel overwhelming. With so many options out there, where should you even begin?The good news is, you don’t need to be a finance guru. There are tried-and-tested strategies that help you save wisely—and they actually work. In this guide, we’ll cover the best way to save money for kids (7 smart strategies that work). These approaches range from simple bank accounts to powerful investment tools. Some teach good money habits. Others offer impressive tax benefits. Let’s explore what each method offers, how it fits into your goals, and how to get started—even if you’re on a tight budget.
Savings Account
A savings account is often the first step for many families. It’s simple, safe, and gives kids their first taste of banking.
Banks and credit unions offer savings accounts for minors. Some of these accounts have no minimum balance or monthly fees. Others come with incentives to encourage regular deposits.
These accounts typically earn interest. Not much, but enough to introduce the idea of compound growth. Your child can watch their balance grow slowly over time, especially if they make regular contributions.
Another bonus? These accounts are insured by the Federal Deposit Insurance Corporation (FDIC). That means your child’s money is protected up to $250,000.
It’s not just about the money. It’s about teaching discipline, patience, and understanding the value of saving. Don’t underestimate the power of showing your child how to deposit birthday money or allowance into a real bank account.
Some parents even match their child’s savings to encourage more deposits. That’s a great way to make saving feel rewarding—and keep them motivated.
Certificate of Deposit (CD)
A certificate of deposit, or CD, works differently from a savings account.
Here’s how it works: You deposit a fixed amount of money for a set period. It could be six months, one year, or even five years. In return, the bank offers a higher interest rate than most savings accounts.
But there’s a catch—you can’t touch the money until the term ends. Withdrawing early could lead to penalties. So it’s ideal for money you won’t need in the short term.
Why is this smart for kids?
CDs introduce the concept of delayed gratification. Your child can see firsthand how leaving money untouched leads to bigger returns.
This option works well for short- to mid-term savings goals. Think of future school expenses, a laptop, or a summer camp fund. CDs are insured and predictable, making them a low-risk way to grow money over time.
Parents can open CDs under their name or as part of a custodial account, depending on their preference.
Custodial Account
A custodial account is a step up from savings. It allows parents or guardians to hold and invest money on behalf of their children.
There are two common types: UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). Both are designed to hold assets for minors until they reach adulthood—typically 18 or 21, depending on the state.
With a custodial account, you’re not limited to cash. You can invest in stocks, bonds, mutual funds, or even ETFs. This opens up powerful opportunities for long-term wealth building.
One advantage is flexibility. The money can be used for anything that benefits the child—not just education. That includes sports equipment, tutoring, or even their first apartment.
But here’s the key thing to remember: Once your child reaches the legal age, they gain full control of the funds. You can’t stop them from using it however they want—even if their decision isn’t ideal.
Still, custodial accounts are a fantastic way to teach kids about investing, goal-setting, and responsible money management.
Traditional Brokerage Account
Looking for more flexibility and control? A traditional brokerage account in your name might be the answer.
This account allows you to invest in index funds, stocks, ETFs, and more. It’s not bound by age limits or withdrawal rules like a custodial account or 529 plan.
That means you can decide when and how to use the funds. You could save for college, but also for a car, a business launch, or other future needs.
Because this account stays in the adult’s name, kids don’t gain automatic access when they reach adulthood. You stay in the driver’s seat.
There are taxes to consider, though. Capital gains and dividends are usually taxable. But with smart planning, these can be minimized. For example, holding investments longer than a year reduces your tax rate.
For parents who want to teach their kids about investing, this option opens the door to hands-on financial education. Show them how to read stock charts. Let them help choose an ETF. These real-world lessons often stick better than classroom lectures.
And if you’re unsure where to invest? Consider using a robo advisor. These tools use algorithms to create a diversified portfolio tailored to your goals.
529 Plan Accounts
College is expensive. Student loans are no joke. If education is a priority in your family, a 529 savings plan is a must-know strategy.
These accounts are designed specifically for educational expenses. You contribute after-tax dollars. The money grows tax-free. And withdrawals are also tax-free—as long as they’re used for qualified education costs.
Those costs include tuition, fees, books, and even room and board. Recently, 529 plans expanded to cover some K–12 expenses and up to $10,000 in student loan repayments.
Some states also offer tax deductions or credits for contributing to a 529 plan. That’s money back in your pocket while you invest in your child’s future.
One of the best features? Age-based investment portfolios. These adjust risk levels automatically as your child gets closer to college age. It’s a “set it and forget it” way to invest smartly over time.
And what if your child decides not to go to college? You can transfer the plan to another sibling—or even yourself. You can also withdraw the funds, though you’ll pay a penalty and taxes on the earnings.
Roth IRA for Kids
A Roth IRA isn’t just for adults. Kids with earned income can open one too—and it’s a serious power move.
This account allows post-tax contributions, which then grow completely tax-free. When your child retires decades later, those withdrawals are also tax-free. That’s a major advantage.
The only requirement is earned income. This could be from babysitting, pet-sitting, acting, or a part-time job. As long as the work is legitimate and reported, it qualifies.
Parents can contribute on the child’s behalf, up to the amount the child earned for the year. The current maximum annual contribution is $7,000 (as of 2025).
While this money is meant for retirement, contributions—not earnings—can be withdrawn early for things like college, a first home, or emergencies.
Few tools offer this much long-term power. If your child starts a Roth IRA at 14, they could easily become a tax-free millionaire by retirement.
Trusts
If you want to control how and when your child receives money, consider setting up a trust.
Trusts are legal arrangements where a trustee manages money or assets for a beneficiary. They’re popular among high-net-worth families, but they’re also useful for average parents with specific goals.
There are different types of trusts—revocable, irrevocable, special needs, and education trusts. Each has different rules, benefits, and setup costs.
The key advantage is control. You decide the purpose of the funds. You can require your child to reach a certain age, graduate from college, or meet other criteria before they access the money.
Trusts can also protect the money from creditors, lawsuits, or irresponsible spending. In blended families or unique situations, this adds a valuable layer of protection.
You’ll need an attorney to set up a trust. Expect to pay legal fees. But for many families, the peace of mind is worth the investment.
One Section with a Personal Anecdote
When I turned 10, my parents opened a savings account for me. It wasn’t fancy. Just a small account at our local bank.
Every month, I deposited part of my allowance. I’d stare at the paper balance slip like it was gold. Watching it grow—even slowly—taught me a powerful lesson.
That little habit stuck with me. When I started earning money in high school, saving wasn’t foreign. It was second nature.
That one small decision changed everything.
Conclusion
There isn’t one best way to save money for kids. It depends on your goals, income, and how involved you want to be.
Savings accounts teach discipline. CDs reward patience. Custodial accounts open doors to investing. Brokerage accounts offer flexibility. 529 plans help avoid college debt. Roth IRAs build wealth for decades. Trusts create structure and protection.
Start small if you have to. Even $10 a month adds up with time.
What matters most is starting early and staying consistent. Whether your child is five or fifteen, there’s a strategy that fits.
Saving isn’t just about money. It’s about confidence, independence, and opportunity. The habits you plant today will shape your child’s future in ways you can’t yet imagine.
Also Read: How Investors Can Use Equity Lock To Grow Their Portfolio
FAQs
Yes. Many parents use a mix of accounts for different goals.
Yes, you’ll pay taxes and a 10% penalty on earnings.
No. Control shifts when they reach legal adulthood—typically 18 or 21.
There’s no age limit. As long as they earn income, even kids can contribute.
