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After many birthdays and milestones, teenagers eventually outgrow the piggy bank. They need a place to deposit paychecks from their first part-time job, or maybe you want to teach them about making financial decisions before heading off into the world.
Here is how to choose a teen checking account.
1. Understand your responsibilities
If your child is a minor, opening a teen checking account means you are opening a joint account with your child. You are a co-owner, meaning that you share the financial burden of any overcharges or fees incurred on the account. Make sure your teen knows she is being trusted with this responsibility.
2. Ask the right questions
Q: Does the account come with spending limits?
A: Some banks and credit unions assign daily spending limits to teen checking accounts, while others allow parents to set such restrictions. These include limits on the amount of money that can be withdrawn at an ATM and the amount of money spent using a debit card. Lean toward an account with daily spending limits that make you most comfortable.
Q: Can a parent set other restrictions?
A: You might be able to specify whether your child can transfer money, make withdrawals or make a deposit. Depending on how much freedom you want to give your teen, you may not need these features.
Q: Do you have to have your own account with the bank?
A: It depends. Some banks and credit unions require a parent to have an account with their institution in order to open a teen checking account, but this isn’t the case for all institutions. Know about the fees and consequences involved when you close your account or your teen’s account.
Q: What happens when a teen ages out of the account?
A: Usually when a teen turns 18, the account is turned into a standard checking account with new fees and requirements. As an adult, he or she will have to decide whether to keep the new account or make the switch to another bank.
3. Find teen-friendly features
You want your child to actually use the account, of course, so make sure it fits his or her lifestyle.
Mobile & text banking
If your teen is glued to his phone, take the opportunity to transition him into mobile banking. A good bank app will offer push notifications about account balances, as well as the ability to deposit checks on the go and make person-to-person money transfers. And some institutions have text features that make it easy to check account balances and recent activity, and they can send alerts that can help to avoid overdraft fees.
» See our list of best banks for mobile banking
P2P & mobile wallets
When kids exchange money with one another, odds are it's not cash and coin. Instead, they're using peer-to-peer payment apps such as Venmo. Most checking accounts and debit cards can be linked to these apps, but because this is a joint account, you and your child should understand the security features and any fees involved. Some banks and credit unions have their own P2P services too.
Your child also can link a debit card to buy things in stores that accept technologies such as Apple Pay and Android Pay. If your teen often forgets everything but his phone, a mobile wallet can be a lifesaver. The feature also has a security layer that means the actual card number is not involved in the transaction, but instead a one-time code.
Some credit unions and community banks offer educational resources for teens online or in person. Depending on how educational you want the experience to be, some workshops or webinars can be efficient supplements to your own parent-teen banking lessons.
4. Keep the fees low
Free is best
This account is a teaching tool; it doesn't need to be fancy. Don't sign up for one that charges a monthly maintenance fee or requires a minimum balance. And if you can, find an account that offers free checks so that you're not paying extra for what will surely be just an educational experience.
Choose a good ATM network
After this experience, your teen will no longer think of you as an ATM. Instead, teach her the difference between good ATMs (ones where you won't be charged fees to withdraw money) and bad ATMs (ones where you will be charged, by your bank and/or the ATM owner, between $2 and $5 each time).
Avoid fees altogether by getting an account at a bank or credit union with a large ATM network — meaning more good ATMs than bad — and let your teen know, too, that grocery stores and many other places will let you get cash back at no extra charge.
Avoid overdraft fees
Save yourself the headaches — and money — and get your teen into the habit of checking account balances. A teen checking account with overdraft protection means either the bank will cover the expense (and charge upward of $34 for it) or that the checking account will be linked to a savings account or a credit card so that money can be drawn from there to cover the expense.
Opt out of such protection — meaning if your teen tries to buy something but doesn't have enough money, the debit card will be declined — or pick an account with the lowest overdraft fees.
Some things have to be learned firsthand. Even after many lessons and warnings, your child may not fully understand the costs of an account until he has to pay fees out of his own pocket. Choosing the right teen checking account can minimize these expenses, making them a small price to pay for some valuable financial education.