When it comes to investing for kids, time and consistency are the most powerful tools for building your child’s wealth. For example, investing just $50 monthly at ~7% returns can grow to over $21,000 by age 18 when you start investing for your child at birth. If you start investing when they’re 10 years old, you might only reach $6,400 – about a third as much. But dollars aren’t the only thing that compounds.
There are two important investments you can make for your child's future: money and your time teaching them about money. One compounds wealth, the other compounds good habits and instincts. If you start early and stay consistent, you'll raise a financially literate child equipped to manage their future. We’ll guide you through investment options, setting up the right accounts, and why doing money lessons at home matters.
Before You Start Investing for Your Child
Before investing for your child, make sure your own finances are in order. This pre-investing checklist puts your priorities first:
- Cover the essentials. Make sure bills are paid on time and there’s positive cash flow.
- Get rid of high-interest debt. Pay off any revolving credit balances or loans above a 7–8% Annual Percentage Rate (APR).
- Create an emergency fund. Save 3–6 months worth of living expenses.
- Contribute to your retirement accounts. Make contributions to tax-advantaged accounts, such as a 401(k) or IRA.
- Invest for your child. Do your research and choose the right accounts that meet your goals, such as 529 plans, custodial accounts, or Roth accounts.
Next, we’ll go over the main account types and compare the top options for children's investments side-by-side so you can choose what works for your family.
Top Investment Options for Children
Deciding which is the best long-term investment for your child depends on a few factors, such as your goal (college-only vs. flexible use) and whether your child has earned income. We'll go over the most popular options, how they work, and the pros and cons, so you can make the right decision.
Kid's Savings Account
Opening a basic savings account is the simplest way to save money for kids. These accounts are federally insured, easy to open, and fully liquid, which is ideal for younger kids making small, irregular deposits from gifts and allowance. They’re a great way to teach your child to set short-term goals, make deposits and withdrawals, and understand how interest works. If you’d like to open one today, Golden 1 offers a Youth Savings account that pays higher yields on lower balances, so it can grow alongside your child.
Best for: Simplicity, teaching children hands-on about bank accounts, safe investments, and easy access to money.
Certificate of Deposit (CD)
CDs offer a guaranteed interest rate for locking up your money for a fixed amount of time (e.g., 6 to 36 months). These accounts are a solid children’s savings plan because they are safe and predictable. But that safety comes with trade-offs: interest rates may not keep pace with inflation and there's a penalty if you withdraw early. For families with specific short-term milestones, Golden 1's Term Saving Certificates let you lock in rates that match your timeline and goals.
Best for: Short- to medium-term savings goals where security is preferable to growth.
Money Market Account
A money market account (MMA) is a hybrid account that combines savings with limited checking features. MMAs provide several advantages over basic savings:
- Higher interest rates than traditional savings accounts.
- Check-writing and debit card access not offered by most savings accounts.
- Greater accessibility via ATMs, checks, and sometimes debit cards.
In exchange, you’ll need to maintain a higher minimum balance to earn the best interest rate and avoid fees. For families looking for a higher APY, Golden 1's money market savings account keeps your cash within reach while it earns bigger returns.
Best for: Emergency funds, short- and medium-term goals without locking money into a CD, and families holding $10,000+ that want to keep it accessible.
Custodial Brokerage Account (UGMA/UTMA)
A custodial brokerage account lets you invest in your child's name and manage it until they reach the age of majority (18, 19, or 21, depending on your state). It can be considered one of the best investments for kids when you want flexibility beyond education-only accounts.
These accounts allow you to invest a range of assets as irrevocable gifts. Eligible assets vary by account type:
- UGMA (Uniform Gifts to Minors Act): Holds basic assets like cash, stocks, bonds, mutual funds, and insurance policies.
- UTMA (Uniform Transfers to Minors Act): Holds the same assets as a UGMA plus physical property, including real estate, artwork, vehicles, and other tangible assets.
There are no income limits or restrictions on how the funds have to be used once your child gains control of the account. These accounts typically hold higher-return, market-based investments that generate taxable income, so here’s what you need to know about taxes:
- Investment earnings are taxable. This includes interest, dividends, and realized capital gains.
- A “kiddie tax” kicks in when unearned income exceeds IRS thresholds. In 1986, the Tax Reform Act introduced a "kiddie tax" to prevent fraudulent activity on the part of parents attempting to avoid paying income taxes by transferring funds in their child’s name.
As a result, any investment that is higher than IRS thresholds is taxed at the parent's top rate.
Best for: Long-term, aggressive growth and families looking for flexibility to let their child use the assets for any purpose (think college, starting a business, or traveling the world).
Traditional Brokerage Account
Unlike a custodial, the traditional brokerage account is a standard taxable account in the parent’s name. You keep legal ownership and control until you decide if and when to give cash or shares to your child. The traditional account has:
- No automatic transfer to the child at the age of majority.
- Parent-asset status for financial aid calculations.
- No usage restrictions on funds.
- Parent-level taxation on interest, dividends, and capital gains (no “kiddie tax”).
If you'd like to know how to invest for your child with a traditional brokerage account, Golden 1 investment services can help set that up, automate contributions, and tailor a plan to your goals.
Best for: Parents who want maximum control, flexibility in use, a smaller impact on their child’s financial aid, and simpler taxes/paperwork than a custodial account.
529 Plans & Education Savings
529 plans are state-sponsored accounts where savings grow tax-free at the federal level. Your state may also offer a deduction or credit for contributions, making the savings potential greater. This money can be used for qualified education expenses, like:
- Tuition and fees (K–12 tuition has a federal cap per year)
- Books, supplies, equipment
- Room and board
- Registered apprenticeship expenses
If you want to use 529 funds for anything non-qualified, there is an income tax plus a 10% federal penalty on the earnings portion of the withdrawal. Your state may also charge a penalty to recoup prior state tax breaks. Education plans have high contribution limits and tax-free compounding, making them an efficient way to build a dedicated education fund. Learn how to invest for your child's education with these special accounts through a personalized consultation with Golden 1 investment services. We can help you choose a plan and investment strategy that aligns with your goals.
Best for: Families committed to education goals who want to take advantage of tax-free qualified withdrawals.
Roth IRA for Kids
A Roth IRA can be opened for any child with earned, documented income. This can come from part-time jobs, babysitting, yard work, and other types of self-employment. Things such as pocket money, gifts, or allowance won’t count towards this. Roth IRAs are one of the best long-term savings options for a child because they offer:
- Tax-free growth on contributions.
- Tax-free withdrawals during retirement.
- Compounding interest that turns small, early deposits into meaningful wealth.
If your child banks $5,000 in a Roth IRA by the time they turn 18—and never contributes again— they retire at 65 with over $112,000 in the account, assuming a 7% annual return. And if they contributed $100 a month from age 18 to retirement, that number grows almost five-fold to $507,400. If you'd like to give your child a headstart on retirement, a Golden 1 IRA savings account can get you started and set the foundation for long-term growth.
Best for: Parents who want to turn even small amounts of earned income into a substantial nest egg for their child's retirement.
Trusts
A trust is a legal agreement where a trustee (the parent or another trusted adult) manages assets for a beneficiary (the child) under rules set by the grantor (the parent who creates the trust). They are a popular tool for parents who want to make sure their wealth is used exactly as they intend— for example, a child might only receive funds for college tuition at 18 or a down payment on a home at 25. Trusts are beneficial because they provide:
- Control over how and when assets are used.
- Protection of wealth from creditors or mismanagement.
- Assistance with estate planning to minimize taxes and avoid probate.
However, trusts can be expensive compared to simpler accounts because setting one up requires an attorney and ongoing administration. Because of this, they are generally worth considering for families with $100k+ to invest for their child.
Best for: Families with significant assets who need more control, protection, and legal structure than simpler accounts can provide.
Teaching Kids Financial Literacy Along the Way
Remember that second investment we talked about in the beginning—your time teaching your kids about money? This is where you help them build the good habits and instincts that will start compounding. Building savings is important, but teaching your children financial literacy along the way is essential for success. Even the biggest savings account won't help your child if they don't understand how to manage money responsibly.
When parents ask about the best ways to save money for kids, the answer isn't just about picking the right account—it's about pairing the right accounts with age-appropriate money lessons. Start lessons early with something as simple as a piggy bank, which teaches foundational concepts like:
- The value of money
- Delayed gratification
- Basic math
- Choosing between saving and spending
- Earning vs. receiving
Start Saving for Your Child
The earlier you begin saving and teaching, the bigger the payoff for your child. Whether you decide on a simple savings account, a 529 plan, or long-term investment strategy, consistent contributions and financial literacy set your child up for success. Golden 1 can help you take the first step with a kids savings account or our advisors can help you set up a more advanced account through our Golden 1 investment services. We’re here to guide you from your first deposit to a full investment plan so your child enters adulthood debt-free and financially confident.
Investing for Children FAQs
Is it better to open a savings account or invest for a child?
That depends on your goals and timeline. Choose a savings account for short term goals that are less than five years or teaching kids how bank accounts work. Investing is better for long-term growth and goals and greater potential returns. Most families use both.
Can grandparents open a child savings account?
Yes, absolutely! Grandparents can open a custodial or joint account until their grandchild comes of age. Some accounts may require the parent’s consent.
At what age can a child start investing?
A child can start investing at any age once an account is opened for them. There is no legal minimum age to be the beneficiary of an investment account.
