Investment Accounts For Kids: Frequently Asked Questions

Many people are not aware that investment accounts for kids even exist. They are missing out on an excellent opportunity to get their children started on the right investment path early in life.

Here are a few frequently asked questions about investment accounts for kids. 

What Is a Custodial Investment Account?

A custodial investment account is an investment account established and managed by an adult on behalf of a minor child. The adult, known as the custodian, has legal control over the account until the child reaches the age of majority, which is typically 18 or 21, depending on the state. The money in the account can then be used by the child when they reach the designated age.

How Are the Deposits Made?

The custodian is responsible for making deposits into the account on behalf of the child. The money can come from the child's own earnings, gifts from family or friends, or any other source. There's usually no set minimum deposit, and you can start with as little or as much money as you want.

In addition, many investment firms offer custodial investment accounts with reduced fees or other perks when you set up automatic deposits. These automated deposits can come from your own bank account or the child's earnings if they have a job.

They typically need to be set up as recurring transfers, and you can change the amount or frequency of these deposits at any time. This convenience and flexibility make custodial investment accounts a great option for busy families. 

Does the Money Grow?

The money in a custodial investment account will grow over time, thanks to the power of compounding. This happens when the earnings from the investment are reinvested, and they begin to earn their own investment income.

The money then snowballs over time, resulting in significant growth potential. But the interest rates are not set in stone and may change over time.

Why Should You Open a Custodial Investment Account for Your Child?

There are several reasons why you should consider opening a custodial investment account for your child. One of the biggest benefits is that it can help teach your child about the importance of investing and saving for the future. They'll know that even a small amount of money can grow into a larger sum over time if it's invested wisely.

It can also give them a head start on building their own investment portfolio if they want to. And since the money is invested long-term, they'll have plenty of time to ride out any short-term ups and downs in the market.

But if they need the money sooner, they can usually withdraw it without penalty once they reach the age of majority.

Share