Sometime between the ages of six and ten, when children master the idea of saving for some future outlay, when they’re old enough to sign their name legibly, and when they have saved a substantial sum or you are ready to make a contribution to help them reach the hefty minimum opening deposit of most banks, they’re ready for their first banking experience – opening an account in their own name.
Adult spadework for this important event starts with trying to find a child-friendly bank, not a small feat at a time when many institutions no longer accept what they consider piddling opening deposits or they charge outrageous fees because they say small accounts are costly to service. Seek out an institution convenient to your home, so the child can eventually go by himself to make deposits or withdrawals. Credit unions are more accommodating than banks, so if you belong to one, check its savings account policy.
Before you actually make the trip to a bank, it makes sense to explain some basic banking principles. If your child has follow-up questions or is still hazy about what’s happening, the bank officer should take the time to explain the process.
Some banking basic to review with kids:
- A bank is a safe place for people to keep their money
Despite the banking failures we’ve had in recent years, that’s still true if the institution is federally insured – commercial banks by the Federal Deposit Insurance Corporation (FDIC), savings banks by the Federal Savings and Loan Insurance Corporation (FSLIC), and credit unions by the National Credit Union Share Insurance Fund.
- Banks add to depositor’s money by giving them interest, something piggy banks don’t do.
“What’s interest?” the kids are sure to ask. Your explanation: Banks do not put all their depositors’ money into vault. Instead, they pool the money and lend some of it for a year or more to people who want to borrow money to buy homes or cars or to start a business. And they charge these people a rental fee for borrowing money, the same way you’re charged a fee when you rent a home video. The fee that banks charge people who borrow the money is called interest. The fee that banks pay you for allowing them to lend your money to others is also called interest. To make its profit, the bank charges borrowers more interest than it pays its depositors.
- The money you deposit is yours to withdraw at any time.
