8 Best Investment Accounts for Kids

You can open and fund a custodial brokerage account, Roth IRA, ABLE account, special needs trust or 529 and help your kids select investments. It's never too early to start.
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Investing for kids

Helping your kid open an investment account can teach them valuable lessons about money and the power of investment growth. Depending on their restrictions, brokerage accounts for children are often called custodial accounts and labeled as UGMA or UTMA.

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, nibling or grandchild, here are eight investment types to get you started.

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1. 529 Savings and investing accounts

If saving for your child’s education is the goal, a 529 savings and investing 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 Investments grow tax-free and can be withdrawn for qualified expenses like textbooks, tuition and room and board.

2. ABLE accounts

An ABLE savings account

Internal Revenue Service (IRS). ABLE Accounts - Tax Benefit for People with Disabilities. Accessed Mar 27, 2024.
, 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. But unlike custodial accounts or trusts, an ABLE (or 529A) account is owned by the person with a disability. Family and friends may contribute, and contributions grow tax-free. The money may be used for a wide range of qualified expenses, from housing to transportation or education.

3. Certificates of deposit

For those with a lower risk tolerance or discomfort with investing, a certificate of deposit, or CD, is a type of savings account that earns a fixed rate over a fixed term. One benefit of CDs is that they provide a safe place to set aside your savings, and they’ll earn a guaranteed return.

CDs tend to pay higher rates than regular savings accounts, but you lock up your money for the term, ranging from three months to five years. They might be right for you if you do not need access to the funds for a short time and want to protect your savings or earn a return without taking on too much risk.

» Compare the best CD rates

4. Custodial brokerage account

Under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA)

Social Security Administration. SI 01120.205 Uniform Transfers to Minors Act. Accessed Mar 27, 2024.
, you can open up custodial brokerage accounts for your kids. Although the account will initially be in your name, your child will automatically take complete control once they reach age 18 or 21, depending on state laws. (Learn more about UTMA and UGMA accounts).

» Ready to get started? See our list of best custodial accounts

5. High-yield savings account

While a high-yield savings account isn’t an investment account, it is an excellent place for the kid in your life to build a liquid emergency fund that will earn a higher APY in a safe and insured spot.

High-yield savings accounts, often provided by online banks and credit unions, pay higher interest rates than savings accounts at brick-and-mortar banks. By opening a kid's savings account with them, you can help your child learn about budgeting, saving, and short-term money management.

» Looking for more? Read our picks for the best high-interest accounts

6. Investing for teens

If your teen asks about investing, a custodial account might be a good place to start. Brokerages are also creating new account types explicitly geared for teens. 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. These new youth investment accounts differ from the custodial accounts outlined above.

However, some investment apps that are most popular with younger generations (such as Robinhood and Webull) don’t offer custodial accounts. So you’ll want to do your research alongside your teen, explaining that if they start investing before 18, they’ll have to do it through an institution that offers custodial accounts.

Once they’re of age, they can decide whether to continue with the same brokerage service or open their own. This can also be a time to explain the benefits of opening multiple investment accounts for various purposes.

The age requirement to open a brokerage account with the most popular investment apps is 18 (and sometimes older, depending on the state). So, until then, you have the final say in how and where they invest.

7. Roth IRA

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 purposes such as a first-home purchase or higher education expenses.

» Learn more about Roth IRAs for kids

8. Special needs trust

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.

Of these eight investment account options, a kids' investment account is most commonly thought of as a custodial account. Read further for details on how to open one for the kid in your life.

Five steps to opening an investment account for your kid

1. Decide on an account type

To get your kid started investing, you should first decide which investment account is best for them. That decision largely hinges on two main factors: whether they have earned income and whether they have a disability. Consult the list of eight investment account types above to decide which is right for your kid.

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 custodial accounts. 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. If your kids just want their money to grow hands-off, consider looking for brokers with a large selection of low-cost index funds.

If you’re looking for a brokerage account to teach your kids about investing, many brokers offer educational content, including online investing tutorials and even practice trading 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. Your kids can invest in individual stocks, mutual funds, index funds, and exchange-traded funds within their brokerage account. To get your kids excited about investing, you might consider a two-pronged approach:

1. 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.

2. 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.

Read our guide to various types of investments to learn more about the investments your child can choose from and to decide which is most suitable.

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.

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Frequently asked questions

To start investing in stocks on their own, your kid will need a brokerage account, and they must be at least 18 years old to open one. They can start earlier than this, but they’ll need a parent or guardian to open a custodial account for them.

A custodial account is a type of investment account that’s managed by a parent or guardian who opens it for a minor before the age of 18 (or 21, depending on the state.) Once the child turns the age of majority, the parent or guardian loses the ability to manage the account.

If you’re withdrawing money from the custodial account, it must be used for the benefit of the minor — no raiding the account to pay for your own expenses. Also, contributing to the custodial account is a one-way street; you can’t take back any assets held in the custodial account once you’ve given them to the minor. The account and its assets belong to the child in every way, even if you’re the one managing it.

Considering the account belongs to the minor, technically, they’re the minor’s taxes to pay. However, for the 2023 tax year, the first $1,250 is tax-free, and when unearned income rises above $2,500, it's taxed at the parents' rate. The kiddie tax threshold is $2,600 in 2024.

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