How to Invest for Kids: 6 Best Investing Accounts

Helping your kid open an investment account can teach them valuable lessons about money and the power of investment growth.

One of the biggest keys to successful investing is a long time horizon for your money to grow — and kids have a lot of time on their side. If they're willing to let their money remain invested for several years, they're likely to see a nice return on their initial investment. Seeing their money grow can encourage them to be good savers and investors as adults.

Whether it's your kid, grandchild or a friend or family member, here are six types of accounts to get kids started investing.

1. Custodial brokerage accounts

A custodial account is a specific type of financial account that is established on behalf of a child and managed by an adult. Although the account will initially be in your name, the child will automatically take complete control once they reach age 18 or 21, depending on state laws. (Custodial accounts are often called UTMA or UGMA accounts.)

» See our list of the best custodial accounts

2. Roth IRAs

If your children are older and have earned income from a part-time job, such as babysitting, raking leaves, or something similar, you can help them open a custodial IRA. A Roth IRA, in particular, is ideal for children: Your child's contributions to the account will grow tax-free. Those contributions can be pulled out at any time, and the investment growth portion can be used for retirement or tapped for particular qualified purposes such as a first-home purchase or higher education expenses.

» See our list of the best Roth IRA accounts

3. 529 savings and investing accounts

If saving for a child’s education is the goal, a 529 account is tax-advantaged for education expenses. Investments grow tax-free and can be withdrawn for qualified expenses like textbooks, tuition and room and board. Most 529 accounts come with a curated list of investment options like target-date funds, which are mutual funds that automatically adjust how much risk they take as the target date — in this case, your child's college age — approaches.

4. Trading accounts

If your teen asks about stock trading, your mind might go to investment apps that are popular with younger generations (such as Robinhood and Webull). But often these don't offer investment accounts for kids.

However, some brokerages are creating new account types explicitly geared for teens who want to learn to trade investments. Fidelity, for example, offers a Youth Account, which lets teens aged 13 to 17 control the account but lets parents monitor its activity, trades and transactions, complete with alerts. Once they’re of age, they can decide whether to continue with the same brokerage account or open their own.

If your child is interested in trading but doesn't have money to invest — or doesn't want to risk the money they do have — you might consider pointing them toward a broker that offers paper trading accounts. These allow investors to practice trading stocks or other investments with fake money.

5. ABLE accounts

An ABLE savings account, named for Achieving a Better Life Experience, is a type of 529A account that allows a person with a disability to save money and wages without losing public benefits^[0]

6. Special needs trusts

A special needs trust is one way someone with a disability can receive financial support without jeopardizing income-tested government benefits. Someone — usually a parent or guardian — sets up, funds and invests this type of trust, which the beneficiary will inherit.

How to open an investing account for kids

1. Decide on an account type

To get your kid started investing, you should first decide which investment account is best for them. The most common choices are outlined above; the ultimate decision largely hinges on two main factors: whether they have earned income and whether they have a disability. If the answer to both those questions is no, you're likely looking at a custodial brokerage account or a 529 (if the goal is building a college fund).

2. Choose the right broker

No matter which type of brokerage account you decide to open for your kids, you'll need to start by finding a broker that offers that account. The best investment accounts for kids charge no account fees and have no minimum initial deposit. This allows your kids to start investing with a small amount of money.

Consider the costs associated with the investments your child plans to choose. For example, you should ensure the broker charges no trade commissions for kids who want to practice trading stocks. Among the brokerage firms we review, the following make our list for the best custodial accounts:

3. Open the account

You can open a custodial account — both a standard brokerage account and a Roth IRA — for your child in under 15 minutes or so. You can complete the entire process online with most brokers.

To speed things up, make sure you have the necessary information ready. The broker will likely ask for your and your child's Social Security number, dates of birth and contact information.

4. Fund the account

Even though you've opened the account, you'll need to fund it before you can start choosing investments. To fund it, link another bank or brokerage account so you can transfer money into the new account. You may also need to supply your employment or other personal information.

Brokers increasingly rely on third parties to connect your new account with an existing one, which speeds up the process. For those who don't use these services, you may need to confirm that a deposit in your bank account (often two separate transactions of a few cents each) came from the broker, which can take several days.

5. Help your kid decide what to invest in

Once the custodial account is open and funded, the real fun begins: Investing the money. Typically, you can invest in individual stocks, mutual funds, index funds and exchange-traded funds within a brokerage account. To get kids excited about investing, you might consider a two-pronged approach:

• Help them pick one or two individual stocks. Focus on household names they're familiar with — owning even one share of a brand kids recognize will get them excited about investing.

• Build the rest of the portfolio with index funds. As your child continues to add money to the investment account, consider skipping additional shares of individual stocks and instead focusing on low-cost index funds or ETFs. These funds bring much-needed diversification to the portfolio by pooling hundreds of stocks into one investment. That way, your child can invest in many companies in one transaction for one price.

Once they've selected and purchased their investments, check their earnings and losses every few weeks and compare the small fluctuations with the more significant long-term changes shown on their quarterly statements. This can spark discussion and inspire kids to become more informed investors.