How to Save Extra Money for Children’s Savings Accounts

by Ryan Guina

My daughter recently turned a year old, and one of the things we are working on is building her savings. Of course, she doesn’t have a need for money right now, but eventually we want to teach her the concept of money, get her started on an allowance, and help her learn to set and achieve savings goals. In the mean time, we want to grow her savings account as quickly and painlessly as possible. And we are taking a multi-tiered approach to her savings.

Help Children Reach Their Savings Goals

Saving money is great, but it works best with a savings goal in mind. There are a couple reasons for this, but mostly because it is easier to save when you have a defined purpose. The most common savings goals for children are cash savings and college savings, so you want to make sure you are saving money in the right type of account. You also want to save money for your children without hurting your own financial goals. The following tips offer a few recommendations for the best places to save, and a few ways to easily save money without stressing your budget.

Save more money for college without breaking the budget

There are two main types of college savings plans you should consider – the 529 college savings plan and the Coverdell Educational Savings Accounts (ESAs). Both have tax advantages that allow you to make contributions now, let your investments grow tax free, and make tax free withdrawals for qualified educational expenses. Some states even offer additional state income tax exemptions for 529 college savings plans – check with your state for more information.

Make college savings painless. College savings doesn’t have to break your budget. You can set up an automatic transfer to your child’s college savings account for a small amount every month – something around $25-$50 per month can make a substantial difference if you start early enough. College savings plans also allow other people to make contributions on behalf of your child, which is a great way to give or receive gifts.

Another way to increase college savings is to use Upromise, which is a free rewards program that pays cash rewards which can be used for college savings. You can also link your Upromise account to a Sallie Mae Savings Account for a bonus rewards program, good for an annual 10% bonus on rewards earnings.

Additional college savings information. You should compare 529 plans and Coverdell ESAs before opening an account to determine which plan is the best option for your child’s college savings account. Here is more information about opening a 529 College Savings Plan and opening a Coverdell ESA Plan.

Help children save money in savings accounts

I’m a firm believer that every child should have a savings account. We opened one for my daughter a week after we brought her home from the hospital and have been making regular contributions to it ever since then. Once she is older we will work with her to better understand how savings works.

There are several ways you can help children increase their cash savings, and the most effective ways include giving them savings goals and a hands on experience. An example would be matching savings contributions or requiring a portion of their allowance goes directly toward savings, then taking them to the bank each month to deposit their money. The more hands on you make the experience, the bigger the impression it will make.

How to make savings painless. In addition to giving your children hands on experiences, you can set up an automatic transfer. Again, something small, like $25 per month can make a big difference over several years. Many online savings accounts make it easy link a child’s bank account with their parent’s account and set up automatic transfers.

Use Smarty Pig for savings goals. Smarty Pig is a savings account designed to help people reach savings goals. It has numerous cool features, chief among them being one of the highest interest rates in the nation. The idea is to create a Smarty Pig account, set a savings goal and set up an automatic transfer. This is a great tool for teaching children about savings, and makes it easy to track your progress. There are a couple other added benefits: You can redeem your savings for discounted gift cards at a fairly substantial savings to make your money go further, and you can allow other people to help fund your savings goals, making this a great option for grandparents and other relatives to help children reach their savings goals.

Use Capital One 360 bonus referrals. Capital One 360 is another online savings account that offers solid interest rates and has many other great features. One of the benefits of Capital One 360 is the $25 Capital One 360 referral program. When you refer a new customer to Capital One 360 and they open an account with $250 or more, they get a $25 bonus, and you get a $10 finder’s fee. You can choose which account receives the referral bonus, so if you have a have a child you can send the referral bonus to their account. $10 doesn’t sound like a lot, but it can add up quickly, especially when you use the referrals to open up multiple accounts within the same family and then refer family members and friends. Every little bit helps!

Do you have any easy ways to help children save money for college or other savings goals?

Published or updated May 21, 2013.
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{ 3 comments… read them below or add one }

1 Dan

Slightly off topic: One thing I do is temporarily put some of our cash in the kids’ accounts. As long as they don’t make interest above the threshold, we save on taxes…..


2 Doug Warshauer

One valuable tip is to not put your college savings accounts in your child’s name. Doing so has a dramatically negative impact on the amount of financial aid your child will receive, as money in the child’s name counts much more heavily against you than money in the parent’s name.

I got this tip from the book “Paying for College Without Going Broke”, which I highly recommend for any parent who expects their children to someday go to college.


3 Ryan

Thanks for the tip, Doug. We have a 529 account for our daughter, but we also have 529 accounts in our names because we opened the accounts before we had our daughter – just in case we wanted to go back to school. We can always use the money in our 529 accounts for her if we don’t use it for our own education.


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