For youngsters, savings bonds serve as an accessible introduction to the finer points of the financial world. Bonds allow parents to save a little money up front -- a $50 Series EE bond only costs $25 -- while teaching kids that money saved is money earned, which in turns illustrates the follies of instant gratification. Savings bonds are not the only option, however. Alternative forms of savings cater to kids with varying levels of financial understanding.
Kids' Savings Accounts
A savings account for a child serves as a slightly more advanced lesson in finances than a savings bond. Check with your bank, as many banks offer fee-free savings accounts tailored to children. Depending on the bank, you can open a custodial account with your child or your child can have her own account. In either case, the child receives monthly statements, teaching her the benefits of interest as her money creates money. Some banks even offer small rewards for deposits, such as stickers.
Rather than presenting a radically dissimilar substitute, I-bonds offer a modest alternative to traditional savings bonds. Unlike traditional bonds, you can't buy I-bonds at half of their face value. However, these bonds come with inflation protection, which means their interest rate continues to increase with inflation over the course of 30 years. Like traditional bonds, I-bonds serve as great gifts or as an investment for education.
The Old Fashioned Way
Piggy banks and savings jars still have merit in an increasingly technological world. These accessible savings methods physically illustrate the process of saving money and help foster patience in financial matters. Reward your child's chores with small dollar amounts and ask her to put some of her earnings in a savings jar. Come up with a purpose for the savings to give your child a goal to aspire to. To encourage her to save, offer to match a portion of what she saves once she reaches a certain goal.
Kids with an advanced maturity level can learn more from advanced forms of savings. Money market deposit accounts (MMAs) work like a combination of a savings account and an I-bond, as they benefit from rising interest rates but do not have a minimum holding period. Fee-free DRIP stocks, available from online brokers, serve as an accessible way to introduce future brokers to the market. Many DRIP stocks are commission free and available for as little as $10 a share.
- Businessweek; Savings Bonds...; Amey Stone; December 2004
- Treasury Direct; I Savings Bonds; July 2011
- Family Education: Savings Accounts for Kids
- American Bankers Association: Personal Finance Tips for Children
- Bankrate.com; Attractive Alternatives to Savings Bonds Available; Greg McBride; April 2005
- DRIP Investor; All About DRIP Stocks; 2007