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Several relatives have expressed the idea of a "baby savings account". Education savings plans are popular, of course, but I was wondering what other types of baby savings accounts people were starting. Dollar-a-day? Something else? Are there any complications setting one up (hopefully with no fees!) in the infant's name? What about taxes, etc.?

I thought this question was a bit closer to moms4mom than BasicallyMoney, so I'm asking it here. Sorry Chris! ;)

asked 14 Jan '10, 02:01

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Scott ♦♦
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Note: this will be a very geography-specific question.

(14 Jan '10, 08:20) Benjol
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@Benjol: I can see how there might be government sponsored plans in some cases. I would think the overall idea of planning for your kids' future is universal, but I am interested in the different ways that might happen around the world.

(14 Jan '10, 11:16) Scott ♦♦

A great question! Getting children on the path to saving and understanding money is an important stage of parenting, and opening up that first account is the initial step in that direction. For my own daughter, my wife and I opened two separate accounts:

  • An interest-bearing savings account at a bank for cash savings, and

  • A self-directed education savings plan for longer-term investing for education.
    (Specifically, we have an RESP, since we are in Canada. Americans should consider a 529 plan.)

The Savings Account: Why?

  • A savings account at a bank (or credit union) is relatively easy to open. Since it's easy to open, you are much less likely to procrastinate and sit on those cash or cheque gifts that ought to be deposited. Worse if they're spent instead :-/

  • It's easy to deposit money into the savings account. Our bank provided an ATM card to use for deposits. Cash or cheque gifts my daughter receives for her birthday, etc. can be deposited directly into her account. You could also set up direct deposit of the Universal Child Care Benefit you may be getting from the Canadian government.

  • We don't want all of the money locked up in longer-term education savings. There may be things our daughter will need or want that won't qualify as an education savings plan withdrawal.

The Education Savings Plan: Why?

  • Your child's post-secondary education is going to cost you a lot of money.

  • The savings account can only hold cash, and interest rates are pitifully low. Whereas the education plan allows us to hold mutual funds, bonds, ETFs, stocks. At the moment we have the education plan diversified across a handful of low-fee index mutual funds. We rebalance every year. However, managing the education plan involves more paperwork than a savings account – but it's worth it.

  • Many government-sponsored/regulated education savings plan provide tax benefits such as tax sheltered growth and taxation of the eventual income in the hands of the beneficiary.

  • Specifically for Canada, education savings are subsidized by the Canadian government with a grant (free money!): a 20% match on the first $2500 each year, for children under age 18, to a maximum of $7200. It adds up!

  • Withdrawals from these plans can be complicated. That's good, since for education savings it's better to be relatively hands off. If not, the temptation is too great to make a withdrawal for some other purpose, e.g. Disney World :-)

Finally, when it comes to taxation – savings account interest is typically taxable (and in Canada at least, "attribution rules" make interest income taxable in the hands of the parents) – but there's usually so little interest lately that it's a rounding error on your income tax return.

Whereas, the education savings are tax-advantaged, as mentioned above.

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answered 16 Jan '10, 17:09

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Chris W. Rea
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edited 16 Jan '10, 17:16

This is exactly what we've set up too.

(16 Jan '10, 17:42) Kate

I knew you'd have a great answer. ;)

(16 Jan '10, 22:58) Scott ♦♦

Why, thank you sir!

(16 Jan '10, 23:32) Chris W. Rea

That 10th up-vote seems elusive :)

(22 Feb '10, 02:49) Chris W. Rea

We started a simple interest earning savings account for our daughter and seeded it with the monetary gifts people have given to her. We may start a college savings account, as well, but I don't want to tie up too much money in such an account, as they are typically restricted in what things they can be used to pay for. Many education savings accounts in America can be used to pay for books or other supplies in addition to tuition, but I haven't seen one that would pay for renting an apartment near school, or gas to drive to school, etc.

< sarcasm > I also don't want to discourage her from getting a full ride on her own merits by being the world's best 17-year-old flamenco guitarist or a world class badmitonist.< /sarcasm >

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answered 14 Jan '10, 19:09

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Scottie T
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+1 for mention of both kinds of accounts.

(16 Jan '10, 17:25) Chris W. Rea

In the UK children all get 250 pounds invested for them at birth (if you are below a certain income level you get an extra 250) in a child trust fund.

The money becomes available to the child at eighteen until then the parents can choose from a variety of different funds, from completely safe savings funds to completely shares based funds. The government recommends a form called a "stakeholder account" which is a shares based account with certain regulations about spreading of assets, levels of charges and also, the money is gradually moved from shares to cash starting when the child reaches thirteen.

Parents etc are allowed to add up to 1200 pounds per year more to these accounts as they wish. They are tax free.

We have chosen not to add more to our child trust funds, but instead they each have a "bare trust" for which me and my mother are trustees (neither of us are tax payers, so it makes things easier). and we put extra money in those. Bare trusts have very few protections in law - if my mother and I agreed to embezzle the money we could, but we'd have to agree to it, and that's not likely! They're invested in stocks and shares (through F and C) at the moment, but we intend to use the stakeholder fund model of gradually moving it to safer investments from when they reach 13 yrs old. When they are eighteen the money will be put into their names, but I hope by then to have taught them to be responsible with it and use it to get them through university and possibly as down payment on a house when they graduate.

We put in their share of the child benefit every month and my mother has split some of her savings between her grandchildren and that went in as a lump sum. Any other extra money goes in as and when they get it - my brother gave them some money at birth.

This is almost identical to what was done for me by my parents and grandparents, and I really appreciated it.

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answered 15 Jan '10, 10:21

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Meg Stephenson
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Garanti Bank one of the major banks in Turkey encourages youngsters to start saving early on and has adopted "Donald Duck" cartoon character as its mascot.

I think accounts are designed to encourage parents to start saving/deposit accounts for their children early on, the bank has also commercialized using the name Garanti Mini, so that children become attached to the notion of saving. They also offer occasional gifts like cuddly toys, piggy banks etc.

You can read the details and outlines which are given for the different types of saving/deposit accounts from the banks online banking website "Garanti Mini"

Fund Accounts, Future Accounts, Gold Accounts and Time Deposit Accounts.

I do not know personally how financially attractive such accounts would be and would prefer to get a more informed opinion from Mr Chris W Rea himself, aka basicallymoney!

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answered 14 Jan '10, 18:28

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Emi
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edited 14 Jan '10, 18:41

Thanks for the mention! I'll post my answer tomorrow :-)

(16 Jan '10, 02:48) Chris W. Rea

See below (or above, as the case may be ;-)

(16 Jan '10, 17:24) Chris W. Rea

We got a Upromise credit card that automatically puts 1% of each purchase, plus extra when we make purchases at certain stores and websites, aside for our kids to use in college.

In addition, their great-grandmother buys them a savings bond each year.

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answered 15 Jan '10, 00:31

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mkcoehoorn
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Asked: 14 Jan '10, 02:01

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Last updated: 16 Jan '10, 17:16