How to start a savings fund for a baby

As a new parent, there are many details to plan. However, savings for the future of your child is an important financial responsibility that you may want to start preparing sooner than late.

The good news is that there are many options available to start a savings fund for your baby. And even if you only have the possibility of storing a few additional dollars each month, getting used to saving for your child could produce large advantages over time.

When you are ready to start saving money for the future of your baby, you may want to consider creating a designated and separate account to hold the money. The best savings funds for babies and children have an average yields, low costs and potential tax advantages.

Here is an overview of four smart ways to create a savings fund for a baby, according to your goals.

Opening a savings account for your baby can be an easy and low way to hide money for the future of your child. So, if you plan to open a savings account for a child, you may want to determine whether a high-performance savings account (HYSA) could be a good choice for your goals.

High return savings accounts are deposit accounts which generally offer interest rates above average compared to traditional savings accounts – up to 10 times the national average. And if you open a hysa with a bank provided by the FDIC, you can believe that your deposits are safe (up to $ 250,000 per depositor, per category of account ownership).

A drawback: high -performance savings accounts are delivered with variable interest rates that can go up and down with market conditions. In addition, despite the competitive rates compared to other types of deposit accounts, they still do not correspond to the returns that you can reach by investing in the market.

High yield savings accounts are commonly found in online banks, but you must also check with traditional banks and credit cooperatives. It is wise to compare several HYSA account options to make sure you find the best rates and available account conditions.

Find out more: The 10 best high -performance savings accounts available today

Another way to save money for your baby is to open a goalkeeper account. These types of accounts allow you to save and invest money in the name of your child.

The custody accounts are available in the following two main varieties:

• Uniform Gift accounts to the Miners Act (UGMA): UGMA accounts can have cash and financial investments. You can open these accounts on behalf of a minor family member in the 50 states.

• Uniform transfers in the accounts of the minor law (UTMA): UTMA accounts may have species, financial investments, real estate and other types of goods. You can open these accounts on behalf of a minor family member, but they are not available in the 50 states.

These custody accounts have no annual contribution limit, but the IRS imposes a tax on gifts if you put a certain threshold. The federal donation tax limit for 2025 is $ 19,000 per individual and $ 38,000 per married couple.

Offering a deposit certificate (CD) is another option to consider if you are looking for ways to invest money for the future of your baby. A CD can be attractive because it offers a fixed interest rate for the entire duration (which can range from a few months to several years), which can be particularly beneficial in a declining interest rate environment.

The capture is that you should keep the money you place in a CD in the account until it reaches the due date. Otherwise, you will be subject to an early withdrawal penalty.

If you wish to offer a deposit certificate to your child, you must first open the CD as a daycare – either a UTMA or UGMA (see above). This means that your child will not have the CD, at least not before he reaches adulthood. And as the age of adulthood varies on a state by state, the CD transfer process to your child once they are quite old can differ.

With a UGMA account, your child should withdraw money from their CD between 18 and 21 years (depending on the state of residence). A UTMA account, in comparison, allows you, as a parent, to make withdrawals for the benefit of your child at any time. Once your child (alias the beneficiary) reaches adulthood (18 to 21, depending on the state of residence), he can take control of the CD.

Find out more: Can you offer a deposit certificate?

As a parent, one of the most important expenses that you may need to plan with regard to your child is their college studies. A 529 plan could be an excellent tool to help you achieve this goal.

A 529 plan is a flexible and flexible savings plan on the taxes you can use to pay educational expenses. Parents, grandparents and other family members can also contribute to plan 529. In addition, you can invest money in action funds potentially high in the name of your child, which is the beneficiary. In addition, as long as the beneficiary uses money for qualified educational expenses, they will not have to pay taxes on gains.

You may even be able to open a 529 plan for an unborn child if you want to start saving money early. Technically, your name is the beneficiary of this situation and list your baby as a beneficiary once they have received a social security number.

It is also possible to modify the beneficiary on 529 plans, which gives parents more flexibility than certain other savings products. But you should also consider the limits of 529 plans (such as the fact that you can only spend money on educational expenses) before opening this type of account.

There is no unique solution when it comes to saving money for your child. Depending on the financial objectives you want to achieve, the opening of more than one type of savings funds for your baby may be the best option.

Keep in mind that it is also good to ask for advice if you don’t know where to start. A trustworthy financial advisor can help you solve your financial priorities and create a financial plan that has meaning for your family, especially when you are being a major change, such as adding a new child to your household.

Finally, don’t forget that you have not started with a huge savings goal if this is not affordable at the moment. Even if you cannot afford to save a few additional dollars a month for your baby, the creation of savings is what matters most.