Best Accounts for Teenagers

Is your teen outgrowing their piggy bank? Maybe they need a place to deposit paychecks from their first job, stash money from grandma, or learn financial responsibility? Regardless, opening an account and learning about personal finances can make a difference in the long run. Taking finances into their own hands, a teen appreciates money, and it empowers them to make financial choices. 

 But what are the best accounts for teenagers? Read on to learn more about banking options for your teen.

What to Consider When Opening an Account for Your Teen

Opening a bank account is a significant milestone. There are lots of options. You’ll want to research and plan. 

Before opening an account, consider:

• Possible Fees. Fee ranges vary, and repeat fees can be costly. Often credit unions and banks charge monthly maintenance, overdraft, non-sufficient fund, and ATM fees. In many cases, they’ll waive monthly fees and minimum balance requirements if the account is for a minor. 
• High Annual Percentage Yield. Pay attention to interest rate tiers. Your teen may have to fulfill specific requirements, like receiving direct deposits or making a certain number of transactions, to earn the highest yields.
• Minimum Balances. Certain accounts require an opening deposit and a monthly balance minimum requirement. You’ll have to meet the minimums to avoid fees. 
• Ease of Access. Consider ATM and branch locations. If the bank or credit union has an extensive network of ATMs, your teen will have better access to no-fee withdrawals and services. 

Best Accounts for Teenagers

Generally, banks and credit unions won’t open accounts for minors. You’ll need to open one designed specifically for people between the ages of 13–17. The teen and guardian jointly own these accounts. They typically offer certain advantages like low or no fees, no minimum balances, overdraft protection, and access to financial education content. 

Account options for teenagers include:

• Student Checking Accounts. A student checking account is a lot like a regular checking account. It offers basic check writing and debit card services. Your teen can also take cash out of your account through ATMs or in-person teller transactions. Banks and credit unions allow guardians to set withdrawal limits and track spending. Student checking accounts convert to regular checking accounts when the minor turns 18.
• Youth Savings Accounts. Checking accounts are transactional, allowing your teen to access money when and where they need it. Savings accounts are better for storing cash your teen doesn’t need to access frequently. Funds in a savings account typically earn more interest, but your teen may have restrictions on how often they can withdraw money without paying a fee.
• Custodial Accounts. Custodial accounts are best for guardians who want to gift the teen money they can’t access until they turn 18. Teens can’t spend money and withdraw from a custodial account. The adult is the only person with the authority to manage the account. Parents can contribute up to $15,000 annually before gift taxes kick in. Two common custodial accounts are Uniform Gifts to Minors Act and Uniform Transfers to Minors Act accounts. Once the minor turns 18, the account converts to a regular savings account. 
• Education Savings Accounts. In addition to basic bank accounts, options are available for education costs. Funds from these accounts can be used solely for educational purposes. 

Two educational savings account options are:

• 529 College Savings Plans. Your teen can use a 529 plan to pay for college, elementary, or secondary tuition, apprenticeship programs, or student loan repayments. Withdrawals are tax-free, and there’s no annual limit on the amount you can deposit into the plan.
• Coverdell Education Savings Account. This account can also help pay for education with tax-favored dollars. Contributions can’t exceed $2,000 per year. Any growth is subject to income or capital gains taxes when the beneficiary pulls money out, provided it goes toward qualified educational expenses. Coverdell ESAs are only available to families within a designated income level. 

Benefits of Teenagers Having Their Own Accounts

Financial preparedness and proper money management don’t just happen when your teen turns 18. These are learned skills and take practice. And when your teen has their own money in their account, they seem to take the responsibility more seriously. 

They’ll learn how to save, budget, and improve their math skills. They’ll become more attuned to how they spend money and gain insights into the importance of balancing priorities. And with an account, they’re prepared to plan and build up savings for expenses such as education costs or moving out.  

Focus Federal for Teen Account Services

It’s never too soon to get your teen started on a good financial pathway. Opening an account is one step in the process. If you think they’re ready, a Focus Federal representative can talk through options and determine the best account for your teenager.