Best Ways to Save Money for Kids

Financial literacy starts at home, and teaching kids how to save and manage money is an important life lesson. The steps you take now to set aside funds for your children’s future or guide them in building their own savings can prepare them for the financial decisions they’ll make throughout their lives.

Consider these five strategies to help set your kids up for lasting financial success:

When it comes to saving for education, few tools match the power of a 529 plan. In our recent customer survey, 62% of respondents agreed that college is worth saving for, and 13% say opening a 529 college savings account for their child is a financial action that makes them proud. These tax-advantaged accounts allow your contributions to grow federal tax-free, and withdrawals remain untaxed when used for qualified education expenses. Many states sweeten the deal further with state tax deductions or credits for contributions.

The beauty of a 529 lies in its flexibility and growth potential, although it’s important to remember that there are no guarantees of market performance. You can invest contributions in various portfolios, typically age-based options that automatically adjust from aggressive to conservative as your child approaches college age. Even modest monthly contributions can compound significantly over 18 years.

For example, if you started saving $100 per month in a 529 when your child is born, the account could grow to over $40,000 by the time your child reaches age 18, assuming annual returns of 6.35%.

Family and friends can also contribute to a child’s 529 plan, making birthdays and holidays opportunities for meaningful gifts that truly keep giving. Keep in mind that to maintain the tax benefits, 529 funds typically need to be used for qualified education expenses—including college, vocational schools, and even K-12 tuition.

Many high-yield savings accounts, such as Growth Savings, have no minimum balance requirements and competitive interest rates. Even if your child isn’t old enough to open their own account, a parent can open an account and allow the child to watch it grow over time. These accounts provide a safe, tangible way for kids to watch their money grow. Seeing their balance increase, even modestly, makes the concept of interest real and rewarding.

Watching growth in a high-yield savings account is a great way to teach kids about the benefits of compounding interest, and Forbright Bank’s savings calculator makes it easy.

For example, Forbright Bank employee Lucia Franco used the Growth Savings calculator to teach her 11-year-old daughter about compounding interest. “I showed her how the high-yield savings account with compounding interest would compare to keeping her cash in an envelope, and the calculator helped her visualize it,” she says.

When your child is saving for a specific goal on a specific time horizon, such as a car or when they head to college, consider teaching them about certificates of deposit (CDs). You could open a CD with your child’s savings and agree on a fixed term and interest rate, depending on their goals. Explain how a CD offers a locked-in rate because you commit to avoid withdrawing funds until a set maturity date. By timing the maturity date to match when the funds will be needed, you can withdraw the principal and interest upon maturity.

Custodial investment accounts, such as those created by the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act (known as UGMA and UTMA accounts), offer another avenue to save on behalf of children. Unlike 529 plans, these accounts aren’t restricted to education expenses, so they give your child flexibility when they reach adulthood.

Parents can use these accounts as teaching tools to introduce teens to investing concepts, involving them in investment decisions, and showing them how their money can fluctuate over time based on market performance. When the child reaches the age of majority, typically 18 to 21, these accounts legally become the child’s property. For that reason, they may impact financial aid eligibility more than parent-owned 529 plans.

In July 2025, Congress passed legislation to allow for any American child born after December 31, 2024 and before January 1, 2029 to create accounts that are eligible for a one-time government contribution of $1,000 and parents can contribute up to an additional $5,000 per year. The funds must be deposited in certain stock mutual funds or exchange traded funds and cannot be withdrawn prior to the child’s 18th birthday. Once the child turns 18, the account is generally treated as a traditional IRA, with tax-deferred growth. This pilot program is scheduled to begin in July 2026.

Sharing financial knowledge doesn’t mean much without practice. Give children opportunities to earn, save, spend their own money, and maybe even take a small loan from you. Whether kids earn money through allowance, payment for extra chores, or borrow money from parents to kickstart entrepreneurial ventures like selling lemonade or handmade jewelry, the experience of earning and using your own money teaches its value.

As you teach kids about saving as they get older, consider matching your child’s savings dollar-for-dollar up to a certain amount, similar to how employers match 401(k) contributions and demonstrates how saving can be amplified. You might match summer job earnings they deposit toward college or contribute to their 529 when they reach certain savings milestones, which can be a helpful motivation for them.

Building your children’s financial future requires both setting aside money for them and teaching them to manage money themselves. A well-funded 529 plan provides educational opportunities, while hands-on money management builds the skills to make smart financial decisions throughout life. Start early, stay consistent, and remember that the habits and lessons you instill now will pay dividends far beyond any account balance.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.