How Do You Start a Baby Savings Plan? (2024)

The first time you hold a newborn baby in your arms, your life will change forever. You’ll have a range of new responsibilities, jobs, costs, and concerns — and one of the biggest concerns all parents, grandparents, godparents, or any other friends and family inevitably have is to make sure that baby's financial future is taken care of.

Having a baby is almost as expensive as it is exciting. That’s why you owe it to the little bundles of joy in your life to develop a baby savings plan and consider how you can grow that savings through investment.

This guide explores when you should start building savings for a baby, the differences between saving and investing, the best baby savings account types, and the best investment plan for a baby.


When Should You Start Building Savings for a Baby?

You don’t have to be an experienced parent of four to know that having a baby is expensive.

According to the US Department of Agriculture, your typical middle-income family is going to spend more than $12,000 in child-related expenses every year. And that number doesn’t even include all of the initial expenses you’ll need to consider, like all of your baby necessities and out-of-pocket medical costs.

Translation: you’re going to want to have a decent amount of money saved by the time your baby arrives — which means if you’re focusing on saving for baby-related expenses, it’s best to start saving long before that baby is even born.

But there’s another aspect of saving for a baby you’ll need to consider, too. In addition to saving for future child-related costs, you should also consider saving for your child’s longer-term financial future.

How Do You Start a Baby Savings Plan? (1)

In terms of saving for a child’s future, it’s never too early to start. You can build savings for that child long before they’re even born — although with some saving or investment vehicles you might need to wait until the child is born.

But we’ll get to your investment options in just a minute. First, let’s take a look at the difference between saving for a baby and investing for a baby.

Saving vs. Investing for a Baby: What’s Right For Me?

When it comes to building a financial future for your baby, you’ve generally got two choices: you can save or invest. Ideally, you should try to do both — we’ll explain why.

Saving money tends to focus on the short term. In the short term, saving is all about establishing a rainy day fund or an emergency fund that you can easily dip into and withdraw cash if you ever need it. This can be a real lifesaver if you bump into unforeseen child expenses down the line.

On the other hand, investing is more about the long term. Investing should take into account your baby’s financial needs when they’ve stopped wearing diapers and started to do a bit of growing up.

The biggest difference between saving for a baby and investing for a baby is risk.

How Do You Start a Baby Savings Plan? (2)

When you save, you're normally going to be putting cash into a savings account like a money market account or Certificate of Deposit (CD). There's virtually no risk that you'll lose any of the funds you've saved — but these savings products aren't going to generate very big gains.

Meanwhile, when you invest, you have the potential for loss. A lot of investment vehicles are linked to the performance of securities like stocks, and there’s no guarantee that stock prices are going to increase. That means when you invest, there’s a risk that you’ll end up with less cash than when you started.

But there’s also potential that your investment pool will generate long-term gains and rewards. A lot of that boils down to compound interest.

There are some savings vehicles like CDs that do offer slightly higher interest rates than normal savings accounts — but generally speaking, if you want your money to work harder and generate more income from interest, you’re going to want to consider investing.

As a result of this, the choice between saving and investing for a baby will often depend on your timescale and your appetite for risk.

But because saving focuses on shorter-term needs and investment focuses on lifelong needs, ideally, you’ll want to develop a financial strategy for a baby that will let you both save and invest simultaneously.

What is a Good Savings Account for a Baby?

Generally speaking, savings products vary based on the provider — and the best account for your baby might not be the best account for the kids next door. That being said, most youth savings accounts have a few key features in common.

First and foremost, most bank or credit union accounts designed for kids are available for young people until they turn 21 years old. But some banks cap the age at either 12 or 18.

When shopping around for a savings account for a baby, you should be looking for an account with the highest possible interest rate. The best child accounts normally pay higher interest rates than adult accounts do — which is something banks do to incentivize saving from a younger age.

How Do You Start a Baby Savings Plan? (3)

It’s also important to consider ownership.

A baby savings account will require custodianship, which means an adult will need to manage and make decisions about the assets in that account. That means you can open an account for a baby, but you, as the adult account holder, have full access and transactional authority over the account. As the child gets older, you can often opt for joint ownership instead.

So, what kind of savings account options do you have?

Banks tend to have their own types of regular deposit savings, money market savings, and certificate of deposit (CD) accounts you can set up for a child. Each account product will have its own pros and cons.

To find the best savings plan for your baby, you’ll need to assess key features like:

  • Annual percentage yield (APY)
  • Deposit rules
  • Monthly balance rules
  • Monthly fees
  • Matching programs
  • FDIC insurance

Rather than running from bank to bank trying to find the best savings account for a baby, it’s going to be a lot easier to look at the key features you’d like to have as part of your baby savings plan and then approach banks to find out if they can offer you a product that ticks all those boxes.

What’s the Best Investment Plan for a Child?

There are a number of investment vehicles you can use to build a nest egg for your baby — ranging from a 529 college savings fund plan designed to cover qualified education expenses to a trust fund that enables you to earmark assets to pass on to a child based on certain conditions.

But if you’re looking for a more flexible and tax-efficient option, one of your best bets is to set up a custodial account.

A UGMA custodial account is an investment vehicle that enables an adult to deposit and hold onto assets like stocks, bonds, or mutual funds on behalf of a child beneficiary.

Because a baby can’t make their own financial choices, the adult must serve as the account’s custodian until the child grows up and reaches the “age of majority” in their state. Generally speaking, that’s either 18 or 21 years old.

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Unlike some other investment accounts, a UGMA custodial account has no annual contribution limits.

That means you, family, and friends can deposit as much cash or as many assets as you’d like into the account without running into contribution limits and getting penalized — and because everything in the account is the child’s legal property, there are also a couple of tax benefits including the “Kiddie Tax.”

The Kiddie Tax is an IRS rule that taxes any unearned income generated through a custodial account at the child’s lower tax code (up to a certain threshold). That represents a pretty big tax saving for most families. Likewise, you’re also going to benefit from the IRS Gift Tax.

The Gift Tax is an IRS levy on cash or assets that you give to someone or sell to them for way below market value. But you’re allowed a tax-free annual Gift Tax exemption of $16,000 per person per year (and a $12.06 million lifetime exemption).

That means you can gift $16,000 per year into your newborn’s custodial account without having to report that gift on your taxes. Past that limit, you can gift $12.06 million in your lifetime before having to pay taxes. A married couple’s limit is twice that amount.

How Do You Start a Baby Savings Plan? (5)

If this sounds like something you’d like to explore, you should definitely check out EarlyBird.

EarlyBird makes setting up a UGMA account for a child fast and simple — but it also offers parents a variety of investment options. When you set up an account, you can choose between a range of exchange-traded fund (ETF) portfolios based on a number of factors that matter to you and your family.


Listen: having a baby is expensive — and those costs are only going to increase as a child gets older. Between saving for college tuition and big trips or trying to get onto the housing ladder, the children in your life are going to need money to fall back on when they grow up.

Fortunately, having a baby savings plan can help you prepare for those expenses and meet them head-on. But if you want to make sure that child is covered in the longer term, you have to consider investing, too. That’s where a custodial account comes to the rescue.

There's no cookie-cutter approach when it comes to investing for a baby. You need to consider what matters to you and what you think will be best for that child as they grow up. But if you're looking for a tax-efficient way to gift uncapped into a flexible investment vehicle, you should consider setting up a UGMA account through EarlyBird.

Ready to start investing for the child in your life? Download the EarlyBird app today.


This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.

How Do You Start a Baby Savings Plan? (2024)


How Do You Start a Baby Savings Plan? ›

To open a savings account for your child, you typically need to provide information including your child's name, birthdate and Social Security number. You'll also likely need to provide your own Social Security number, driver's license number, address, phone number and email address.

How to start a savings account for a baby? ›

To open a savings account for your child, you typically need to provide information including your child's name, birthdate and Social Security number. You'll also likely need to provide your own Social Security number, driver's license number, address, phone number and email address.

What is the best investment to start for a baby? ›

The best investment accounts for kids
  1. Best for education: 529 savings plan. ...
  2. Best for versatility: Uniform Gifts to Minors Act (UGMA) Accounts. ...
  3. Best for retirement: Custodial Roth IRA. ...
  4. Best for teaching how to save: Custodial savings accounts. ...
  5. Best for teaching how to invest: Custodial brokerage account.
Feb 26, 2024

What do you need to open a baby savings account? ›

To open a Child Saver you'll need to provide a valid ID document for the child. In most cases you'll only need to provide either a UK or EU passport, or a full birth certificate showing both the parent's and the child's details. We might require additional documents to complete further ID and address verification.

How to start saving for a new baby? ›

How to save money for a child
  1. Evaluate your cash flow.
  2. Automate your savings.
  3. Create a children's savings account.
  4. Save for your child's college costs.
  5. Save for your child's life experiences.
  6. Don't forget to prioritize your own retirement savings.
Jun 7, 2023

What type of savings account is best for a baby? ›

By law, a minor can't open a savings account. Instead, a parent or guardian must set up a custodial savings account or joint account for a minor child. A custodial account belongs to the child, but an adult oversees it until the child is old enough to do it on their own (typically age 18).

Is it worth opening a savings account for a child? ›

To save money for a specific short-term financial goal.

Having their own savings account can help your child learn how to set financial goals and make responsible decisions about how to use money.

How can I build my baby's wealth? ›

How to build generational wealth
  1. Invest in your child's education. ...
  2. Invest in the stock market. ...
  3. Invest in real estate. ...
  4. Create a business to pass down. ...
  5. Take advantage of life insurance. ...
  6. Write a will. ...
  7. Set up a trust. ...
  8. Name account beneficiaries.
Jan 31, 2023

What is a good income to have a baby? ›

The estimated cost for raising a child from birth to age 17 is an average of $233,610, or $12,189 a year, for a middle-income family (with two children) in the U.S., according to data published in a 2017 U.S. Department of Agriculture report.

Can I start Roth IRA for my child? ›

A Roth IRA for a child needs to be started and managed by a parent or other adult as a custodial account. The child needs a Social Security or other tax identification number, plus earned income. The Roth IRA stays a custodial account until the child reaches the age of majority, which is 18 in most states.

Who pays taxes on a child's savings account? ›

Do I Have to Pay Taxes on My Child's Savings Account? Interest earned on a savings account is considered unearned income. Per IRS rules, if a child has more than $2,500 of unearned income, that money will be taxed at their parents' tax rate or their own—whichever is higher.

How much do I need in savings for a baby? ›

Some studies show numbers ranging from $20,000 to $50,000 for the child's first year of life, depending on location and household income.

How to open a bank account for a newborn baby? ›

The account opening form will have to be filled up along with the KYC details. In this case, the age proof of the minor along with the parent's Aadhar and PAN card will be required to open the account. So, take the first step to inculcate financial lessons to your child.

What is the best investment for a baby? ›

529 plans. A 529 plan is a college savings account that offers tax benefits and allows the contributions to be invested into available stock and bond funds. While contributions do not get a federal tax break, earnings inside the 529 are tax-deferred and tax-free if used for qualified education expenses.

How do I set up savings for my baby? ›

You could open a custodial account, such as a Uniform Transfers to Minors Account (or UTMA) or a Uniform Gifts to Minors Account (or UGMA), on behalf of your child. The custodian controls the money in the account until ownership is transferred to the child once they are 18 or 21, depending on the state.

Can I open a bank account for a newborn baby? ›

You need to submit the child's birth certificate as age proof. The child must be below 18 years of age. As well as age proof, this is also required to establish your relationship with the minor. You need to submit your details, particularly PAN card information, as well.

Can you open a savings account for a baby for a gift? ›

Custodial Account

You could open a custodial savings account at a bank to give to a child as a gift.

How can I start saving money for my child? ›

Here are six ways to save for your child:
  1. High-yield savings or money market account.
  2. Certificate of deposit.
  3. UTMA or UGMA account.
  4. 529 plan.
  5. Trust.
  6. ABLE account.
Apr 16, 2024

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