Opening a savings account for your child is one of the best financial moves you can make as a parent. Even small amounts saved consistently — $50 or $100 per month — compound into tens of thousands of dollars by the time your child reaches adulthood.
The account type you choose matters almost as much as the amount you save. A high-yield savings account earning 4.5% grows your money 10× faster than a traditional bank account paying 0.01%. And a tax-advantaged 529 plan can save you thousands in taxes on college savings.
Our top picks at a glance
Best high-yield savings account for kids: Ally Bank
Why we like it for kids' savings
Ally's Online Savings Account isn't marketed specifically as a kids' account — but it's the best place to park a child's savings fund. At 4.20% APY with no minimum balance and no monthly fees, it earns roughly 420× more than the national average of 0.01% at traditional banks.
The math is compelling. $5,000 saved for a child in a traditional savings account earning 0.01% grows to $5,005 after 10 years. The same $5,000 in Ally at 4.20% grows to approximately $7,520 — $2,515 more for doing nothing different except choosing the right account.
Note: savings account rates change over time. Index fund returns are historical averages, not guaranteed.
How to open for a child
Ally's savings account is for adults — you open it in your name as a dedicated "baby fund" or "college fund." This is completely normal and appropriate for young children. When your child is older (typically 18), you can gift or transfer the funds. For a formal custodial account in the child's name, see the Fidelity option below.
What to watch out for
High-yield savings account rates are variable — Ally's 4.20% APY could change if the Federal Reserve cuts interest rates. The account isn't in your child's name, which means it counts as your asset on financial aid forms (a slight FAFSA advantage, actually). If you want a formal custodial account, Ally is not the right fit.
Best custodial account: Fidelity Youth Account
Why we like it for kids
The Fidelity Youth Account is a brokerage account specifically designed for teenagers aged 13–17. It comes with a debit card, the ability to buy fractional shares of stocks and ETFs, and access to Fidelity's investing education resources — all with no fees and no minimums.
For a teenager ready to learn about money, this is the ideal starting point. They can put their birthday money or job earnings into the account, buy fractional shares of companies they recognize (Apple, Nike, Amazon), and experience real investing with real money — with a parent linked to the account for oversight.
The account converts to a standard Fidelity brokerage account when the teen turns 18, with no paperwork or disruption.
What to watch out for
The Fidelity Youth Account is only available for teens 13–17. For younger children, Fidelity offers a standard UGMA/UTMA custodial account (also no fees) that parents control until the child reaches adulthood. The Youth Account doesn't earn competitive savings rates — it's primarily for investing, not high-yield cash savings. Use Ally alongside Fidelity for the savings component.
Best for college savings: NY 529 Direct Plan
Why we like it for college savings
If your goal is specifically college savings, a 529 plan beats a regular savings account in almost every scenario. Growth is tax-free, qualified withdrawals are tax-free, and 34 states offer a state income tax deduction for contributions.
New York's 529 Direct Plan is consistently rated among the best in the country for its low fees (as low as 0.12% on index fund options), strong Vanguard investment options, and no residency requirement — anyone in any state can open it. If your own state offers a tax deduction, use your state's plan first for the deduction, then consider NY's plan if your state's investment options are poor.
Since 2024, up to $35,000 of unused 529 funds can be rolled over to a Roth IRA for the beneficiary — significantly reducing the "what if they don't go to college" risk.
What to watch out for
529 funds used for non-education expenses incur income tax plus a 10% penalty on earnings. Contributions are capped by gift tax rules ($18,000/year per donor without filing). The account counts as a parental asset on the FAFSA, reducing aid eligibility by up to 5.64% of account value.
Best dedicated kids' account: Capital One Kids Savings
Why we like it for young children
Capital One's Kids Savings Account is designed specifically for teaching children about saving. It links to a parent's account for easy transfers, includes automatic savings features, and gives kids visibility into their own balance — an important step in building money habits early.
The account has no fees, no minimums, and no age restrictions. For parents who want their child to feel ownership of their savings — watching the balance grow, setting savings goals — this account delivers that experience better than a plain adult high-yield account.
What to watch out for
The 0.10% APY is far below the best high-yield savings accounts. For maximizing growth, Ally Bank is the better choice. Capital One Kids Savings is best used as a teaching tool — the account your child sees and interacts with — while actual long-term savings happen in a separate high-yield account in your name.
Side-by-side comparison
Which account type is right for your family?
Open a high-yield savings account (like Ally) in your name for a flexible general kids' fund, and a 529 plan for dedicated college savings. Automate a monthly transfer to each on payday. The savings account covers everything else — first car, gap year, trade school — so the 529 isn't pressured to do everything.
See how your savings grow over time
Our free child savings calculator shows exactly how different monthly contributions compound over 18 years — at different interest rates.
Use the child savings calculator →Frequently asked questions
For maximum interest earnings, a high-yield savings account like Ally Bank (4.20% APY) in a parent's name is the best option for most families — 10× higher rates than traditional banks with no fees. For college-specific savings, a 529 plan offers tax-free growth. For teenagers learning to invest, the Fidelity Youth Account is unmatched. The "best" account depends on your goal.
Yes — you can open a savings account for a newborn on day one. The most practical approach is to open a high-yield savings account in your own name designated as a "baby fund." You can also open a 529 plan for a newborn immediately. Formal custodial accounts (UGMA/UTMA) can be opened for a newborn but require a Social Security number, which you'll receive within a few weeks of birth.
Any amount saved consistently is better than none. A common starting point is $50–$100 per month, which grows to $17,000–$34,000 over 18 years at 4% APY. For college savings specifically, use our college savings calculator to work backward from your target — a family aiming for $100,000 at a state school in 18 years needs to save approximately $280/month starting from birth, assuming 7% average market returns in a 529.
It depends on who owns the account. A savings account in the parent's name counts as a parental asset on the FAFSA — reducing aid eligibility by a maximum of 5.64% of the account value. An account in the child's name (like a UGMA/UTMA custodial account) counts as a student asset — reducing aid by up to 20% of its value. For this reason, parent-owned 529 plans and high-yield savings accounts are generally better for families who may need financial aid.
A custodial account (UGMA/UTMA) can be used for anything — it's an investment account in the child's name that transfers to them at adulthood. A 529 plan can only be used for qualified education expenses without penalty, but offers tax-free growth and withdrawals. The 2024 rule allowing up to $35,000 of 529 funds to roll over to a Roth IRA makes 529s more flexible than they used to be. See our detailed 529 vs Roth IRA guide for the full comparison.