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Best Savings Accounts for Kids

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Piggy banks are fun for small change, but if you want to teach your kids important lessons about managing money and the power of compound interest, get them their own savings account. While your local bank branch probably offers more than one savings account product, you might consider looking online for one that’s designed with children in mind.

To aid in your search, we have chosen six savings accounts tailored for kids from a selection of nearly 100 kids’ savings options offered at banks and credit unions around the country. We based our selections on how well they met these five criteria:

  • Competitive annual percentage yield (APY): Accounts should demonstrate the rewards you can get by saving your money, and a competitive interest rate helps achieve that objective.
  • Low fees: Kids don’t need to lose their money to fees, so finding an account with zero fees was important.
  • Low minimum deposits: Most kids don’t have a large amount of money to save when they first open an account. Having a low minimum deposit requirement can help them get started quicker.
  • Broad geographical reach: Banks and credit unions need to be available to a large geographic market, with extra points for physical locations where kids can go and deposit cash and coins.
  • Great educational tools: Savings accounts that are geared to kids should have some educational tools to help them learn about what it takes to achieve financial success. Bonus points if the tools are fun, too.

 

Best overall savings account for kids: Capital One

Kids Savings Account from Capital One Capital One’s Kids Savings Account has all of the features you’d expect to see in a savings account for adults but with the additional feature of parental controls, which makes it a great overall solution for kids of all ages. The account earns 0.40% APY, has no monthly fees and can be opened with $0. You can set it up the account, and make your initial deposit at a later date.

The Kids Savings Account parental controls allows parents to sign into the account under their own usernames and passwords to help their children manage their funds. Parents always control transfers in and out of the account, offering good balance between independence for the young holder and parental oversight. Kids get to view their balance and watch their money grow.

Capital One lets you create an automatic savings plan linked with other accounts, so you can automatically transfer your child’s allowance into their Kids Savings Account. When it comes to geographical reach, Capital One has approximately 500 branch locations, as well as a great mobile banking app, which allows you to deposit checks and check balances.

Capital One Kids Savings Account
APY: 0.40%
Monthly Fees: $0
Minimum Opening Balance: $0

SEE DETAILS Secured

on Capital One’s secure website

Member FDIC

Best savings account for college savings: Citizens Bank

CollegeSaver from Citizens Bank (RI) If you want to be rewarded for consistent savings, the Citizens Bank CollegeSaver account has a bonus you might consider. If you open the account before your child is six and make a deposit of at least $25 each month until your child turns 18, Citizens Bank will give you a $1,000 bonus (the current account APY is a low 0.01%). You can also open this account if your child is between 6 and 12 years of age, but the minimum monthly deposit will be $50 and opening deposit is $500.

If you were to open the account today with an initial deposit of $25 upon the birth of a child (and assume the current APY held for 18 years), and then deposit $25 a month for 18 years, your $5,400 investment would accrue $24.48 in interest. Add the bonus and you’ll end up with $6,449.48. The bank doesn’t put any stipulations on how the money can be spent, so you can use the balance for college or any other financial needs.

Citizens Bank CollegeSaver
APY: 0.01%
Monthly Fees: $0
Minimum Opening Balance: $25 for children under six years old; $500 for children age six to 12

SEE DETAILS Secured

on Citizens Bank (RI)’s secure website

Member FDIC

Best savings account for a young child: PNC Bank

S is for Savings from PNC Bank If you want to engage your child with educational tools, PNC’s S is for Savings account offers a lot. Granted, this account offers the lowest APY of the banks that made this list, but it makes up for it with its interactive online banking experience.

The Learning Center features Sesame Street characters that will help them learn basic money concepts. The site has fun activities you and your child can do together.

Features include the ability to set up automatic savings deposits that help them see the benefits of having a savings routine. Kids can work towards goals and learn about the three components of money: saving, sharing and spending. As your child gets older, you may choose to transfer their accumulated balance to a savings account at a bank that offers a higher interest rate.

PNC Bank’s S is for Savings
APY: 0.01%
Monthly Fees: $0 for account holders under 18
Minimum Opening Balance: $25

Best savings account for teens: Alliant Credit Union

Kids Savings Account from Alliant Credit Union When your child turns 13, Alliant Credit Union considers them to be a young adult, offering their High-Rate Savings Account with a 0.65% APY and no monthly fees. For teens who want to set savings goals, the credit union allows them to set up supplemental accounts that can be earmarked for specific items, such as saving for a new car.

What makes this a great option for a teen is that Alliant also offers an interest-paying teen checking account for kids ages 13-17. The checking account earns an APY of 0.25%. The two accounts can be linked and both will earn your teen interest. Alliant also refunds up to $20 per month in ATM fees if the teen uses out-of-network machines.

To open an account at Alliant Credit Union, you must be a member. Membership is open to employees or former employees of partner businesses or organizations. Or you can join by making a $10 donation to the Foster Care to Success Foundation.

Alliant Credit Union High-Rate Savings:
APY: 0.65%
Monthly Fees: $0
Minimum Opening Balance: $5

SEE DETAILS Secured

on Alliant Credit Union’s secure website

NCUA Insured

Best APY for a kid’s savings account: Spectrum Credit Union

MySavings from Spectrum Credit Union Spectrum Credit Union currently offers the highest interest rate on the market for a kid’s savings account, but only on a relatively limited balance. Spectrum’s MySavings account earns 7.00% APY on account balances up to $1,000, making for a rate that’s higher than many CDs. Balances over $1,000 earn the regular savings rate, which is 0.40%. A high interest rate can help get kids excited about savings as their balance will grow quicker.

Spectrum Credit Union currently has branches in six states, but deposits can be made nationwide through the Credit Union CO-OP Shared Network. Membership is open to anyone by joining the Contra Costa County Historical Society ($15 membership fee) or the Navy League of the United States ($25 annual membership fee).

Spectrum Credit Union MySavings
APY: 7.00% for the first $1,000; 0.40% on balances above $1,000
Monthly Fees: $0 for account holders under 18
Minimum Opening Balance: $0

SEE DETAILS Secured

on Spectrum Credit Union’s secure website

NCUA Insured

Best online tools for a kid’s savings account: Capital One

Kids Savings Account from Capital One Kids are digital natives, and that makes a kid’s savings account’s online banking features extra important. In addition to being our pick for best overall savings account for kids, the Capital One Kids Savings Account offers a great selection of online saving and budgeting tools that will keep kids engaged and informed.

One of the best features is the ability to create additional savings accounts and set a target goal for each account. For example, you child may set a goal for holiday gifts, another goal for a new bike or car and another goal for vacation money. They can even give each account a nickname, such as “My Wheels Fund.”

Capital One has a full suite of online tools for your child to track their progress and success, helping to keep them focused on their goals. Capital One also offers standard features on its mobile banking app, some of which are available for kids, including the ability to check their balance or make a mobile deposit.

Capital One Kids Savings Account
APY: 0.40%
Monthly Fees: $0
Minimum Balance: $0

SEE DETAILS Secured

on Capital One’s secure website

Member FDIC

Why your kid should have a savings account

It’s never too early to start teaching your kids about money, and a savings account is a great tool to help accomplish this aim. According to the 9th Annual Parents, Kids & Money Survey by T. Rowe Price, 55% of parents said their child has a savings account, but just 23% of kids said that they talk to their parents frequently about money. Parents who discuss financial topics with their kids at least once a week are more likely to have kids who say they are smart about money than than those who do not have a discussion with their children.

Savings accounts show kids the value of saving at an early age. They get to watch their money grow as compound interest work its magic, and they can set short- and long-term goals for the money they save. The reward of achieving the goals will teach life lessons on patience and planning. Once you open an account for your kids, share money management tips with them, things like “paying yourself first” by saving a portion of gifts and allowances they receive instead of spending it all.

When you teach your child good money habits early on, you help set them up for success later in life. Putting your child on the path for financial responsibility and independence by choosing the best savings account for kids could be the greatest gift you can give them.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

What Are Negative Interest Rates and How Do They Work?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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Instead of adding money to your account, negative rates subtract a percentage, negatively impacting your balance. Typically, when you deposit money into a savings account, you’re used to earning interest, even if it’s not a lot. The money you earn is a result of positive interest rates, which are based off of benchmark rates set by the federal government.

Negative interest rates are also based on rates set by the federal government, and can be used as a tool to help out a struggling economy. We cover how it works, as well as how negative interest rates can affect you.

How do negative interest rates work?

As you may have guessed, negative interest rates occur when the interest rate drops below zero. With a negative rate, a bank or credit union charges you interest to hold your money, subtracting it from your account instead of adding to it. If an interest rate of 0.06% were negative, a $1,000 balance in your account would drop to $999.40 by the end of the year. While your money is still safe, it’s subject to shrinkage.

“Negative interest flips our understanding of interest,” said Ken Tumin, founder of DepositAccounts. “When you deposit money into a bank, you are usually rewarded with interest. Negative interest punishes you if you deposit money at a bank.”

Negative interest is a tool that central banks, like the Federal Reserve, can use as a way to help steer the nation’s economy. The Fed sets the policy interest rate, which is the benchmark for interest rates set by banks and credit unions. Raising and lowering the rate can impact the economy. For example, higher rates encourage people to save by increasing the interest they’re paid on deposit accounts, while lower rates can prompt more spending and consumption by reducing the cost of borrowing.

Creating a negative interest rate is an emergency action that a central bank may take to address an economy that’s at risk or weak. While it sounds like an unusual approach, it can have positive consequences for the economy.

The effects of negative interest rates on the economy

When interest rates are negative, banks have to pay to keep their excess funds in the central bank. By making the rates negative, the central bank is encouraging banks to offer more attractive loan options to lend out their money rather than watching their funds shrink. This gets more money circulating, which in turn can help certain sectors, like retail. Low loan rates can also prompt businesses to invest in capital as well as hiring.

“The thought is driven by central banks trying to fight off recessions like a pandemic,” said Tumin. “The theory is that they want to encourage banks to do more lending, which should help the economy.”

But there’s no guarantee, and ultralow rates could backfire. Mortgages rates, for example, follow the federal funds rate, and banks may become more stringent on lending since negative rates would reduce their profit margin.

Negative interest rates may also cause banks to stop paying interest on deposit accounts. And if banks start to charge customers to hold their money, it may encourage them to pull it out, which would reduce banks’ holdings.

How negative interest rates affect consumers

The ripple effects of negative interest rates can be a slow process, according to Tumin. “If you follow how banks that have negative interest rates started, it’s usually larger depositors being affected first, such as institutional customers,” he said. “The rates slowly trickle down to smaller depositors. It isn’t a fast process when the central bank goes negative.”

Once it does trickle down, though, the impact of negative rates can hit your wallet. Here’s how.

Lower yields on bank accounts – and potentially more fees

The first hit will be to your savings and checking accounts. “Interest rates might not become negative in deposit accounts, but they can become closer to zero,” said Tumin. “Negative rates hurt the profitability of banks, and when banks are hurt they are not consumer friendly.”

In addition to providing low or no yields on accounts, banks will likely add or raise fees, such as monthly maintenance, overdraft, ATM and statement fees. They might also add higher minimum requirements for opening deposit accounts, or they may require a customer to have an active checking account in order to open a certificate of deposit (CD).

Lower rates on loans, including negative rate mortgages

The news isn’t always bad though. Consumers can benefit from negative rates in the form of cheaper loans. Denmark, for example, has had negative interest rates for seven years, and some of its banks are the first in the world to offer negative-rate mortgages.

While negative rates sound like a homebuyer’s dream, analysts predict that they can also drive up housing prices due to higher demand. And banks in Denmark have compensated for their loss in revenue by steadily increasing mortgage fees, which are now about 50% higher than they were a decade ago.

Negative interest rate bonds

Negative interest also shrinks bond yields. When you factor in the interest over the life of the bond, its value at maturity may be less than your purchase price.

In Europe and Japan, both of which have negative interest rates, about 70% of government bonds have a negative yield. You can still make money if you trade the bond, as long as the price of the bond goes higher.

Lower credit card interest rates

Negative interest rates could impact credit card rates by lowering them. Currently, the average credit card charges 14.52%, a rate that has dropped by 0.57% since the first quarter of 2020. Negative interest could continue the downward trend, but it’s unrealistic to expect that you’ll eventually get paid to put a purchase on your credit card.

Are there any countries with negative interest rates?

In 2014, the European Central Bank (ECB) became the first central bank to implement negative interest rates – an action it took to address deflation and the eurozone crisis. At that time, the ECB lowered the deposit rate to -0.1%, and today its current deposit rate is -0.5%, which is the lowest on record.

“In Germany, 80 banks charge negative interest, and 16 of those apply the policy to small depositors,” said Tumin. “A court ruling in June 2018 said banks in Germany can only apply negative interest rates to new customers and not existing [ones]. It’s hard to find positive rates in banks there today.”

The Bank of Japan also has a negative interest rate. It became the first central bank to introduce a zero interest policy in 1999. The country changed its key rate to negative in 2016, in an effort to correct a spike in the yen that resulted from the country’s export-reliant economy. Currently, the rate is -0.1%.

Have negative interest rates worked?

The results of going negative have mixed reviews. Deflation did not vanish in Japan, for example, where core consumer prices fell 0.5% a few months after rates went negative. And lending did not increase as was hoped. Some studies found that bank profits fell in certain European economies and Japan, as many were hesitant to drop deposit rates below zero, which could reduce their funding.

But the ECB reports that the positive effects have included better macroeconomic conditions. This can lead to higher volumes of lending, and an improved economic outlook with better creditworthiness among borrowers, which can lower risk.

How likely are negative interest rates in the U.S.?

The U.S. has never had a negative interest rate. Some lawmakers are currently floating the idea to ensure that the weak growth that lingered after the 2008 global financial crisis, which contributed to the Great Recession, doesn’t happen again.

However, Federal Reserve Chairman Jerome Powell has said he’s not considering it. “I know there are fans of the policy, but for now it’s not something that we’re considering,” he said in an interview in May. “We think we have a good toolkit and that’s the one that we will be using.”

One reason negative rates haven’t yet been adopted is because lawmakers aren’t clear that the Federal Reserve has the legal authority to charge banks interest on their reserves. However, setting the rate at zero could effectively cause negative rates for some types of accounts, such as money market funds, says Tumin.

“You might start seeing some yields go negative, especially next year,” said Tumin. “Money market fund managers have already done it to deposits from certain types of investors, limiting how much money flows into those accounts because of the management fees it costs them. Many are already making some preparations in terms of dealing with that, and it’s possible that we will be seeing a slight negative yield in 2021.”

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Personal Loans

What Is APR and How Do You Calculate It?

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When you’re shopping around for credit, you’ll see the term APR thrown around. APR stands for annual percentage rate, and it’s a better representation of your cost for borrowing compared to the interest rate.

When comparing a debt’s APR versus its interest rate, you’ll often find that they’re different, though they’re both expressed as a percentage. Where the interest rate is what the lender charges you for borrowing funds, the APR takes into account the interest rate plus other costs and represents these fees as a yearly rate.

What is APR? A deeper dive

When you take out debt, such as a personal loan, you’ll repay the amount you borrowed plus fees. In addition to the interest rate, the APR may include other fees a borrower must pay to take out the loan. With a personal loan, this is likely to be an origination fee, which can range from 1% to 5%.

In order to know how to find the APR, look at your loan agreement. The federal Truth in Lending Act requires lenders to disclose the APR for any form of credit so borrowers understand the true cost of any loan. You’ll also find many lenders disclose upfront the APR ranges they charge. The better your credit and financial health, the lower the APR you can receive.

How do you calculate APR?

Calculating a loan’s APR involves a few steps. To learn how to calculate APR, you can use the formula above. You’ll need to gather the following information:

  • Loan amount
  • Interest owed over the life of the loan
  • Fees
  • Number of days in the loan term

Now that you have the formula and the information you need to calculate, let’s walk through a hypothetical situation to understand and see how the APR works.

Calculating your APR

Let’s say you are interested in taking out a $5,000 personal loan and want to compare rates. One lender is offering an interest rate of 8% with a 3% loan origination fee for a term of 12 months.

To determine your APR you need to add the fees and interest to the loan amount, calculate the monthly payment that includes the fees as part of the loan and then convert that amount into an interest rate.

With our $5,000 personal loan example:

First, calculate the interest and fees.
The origination fee would be $150 and the total interest is $400.00, for a total of $550.00.

Take that number and divide it by the loan amount.
$550.00 / $5,000 = 0.11

Next, divide the result by the term of the loan, calculated in days.
0.11 / 365 = 0.00030137

Then multiply that by 365 in a year.
0.00030137 x 365 = 0.11

Finally, multiply that by 100 to get the APR.
0.11 x 100 = 11.00%

Seeing the APR in action

Let’s now say we’re shopping around for different lenders. Take a look at how different interest rates can impact the APR and your monthly payment if your loan has a 36-month term for which the interest rates are different. The $5,000 loan has a 5% origination fee, so what would the APRs be for all three options?

APRs at a glance

Interest rate

5%

9%

13%

Loan fee*

$250

$250

$250

APR

8.46%

12.54%

16.63%

Monthly payments

$149.86

$159.00

$168.47

*Fee assumes 5% origination fee on $5,000 loan

Fixed APRs vs. variable APRs

A fixed APR is an annual percentage rate that is set for the term of the loan, while a variable APR is a percentage rate that can fluctuate. Fixed rates don’t change over the life of a loan — this means that if you take out a $5,000 personal loan with an 8.00% fixed interest rate, the rate will stay the same until the loan is paid off, no matter what happens in the economy.

A loan with a fixed APR has some advantages — offering a predictable payment, for example — and this can be helpful for planning a budget. Loans that typically have a fixed APR include:

  • Personal loans
  • Mortgages
  • Auto loans

Variable APRs are tied to a market index, such as a prime rate that is set by the Federal Reserve. A loan with a variable APR can be a good choice during an economy with a low prime rate, especially for borrowers who plan to pay it back in a short amount of time. In times of volatility, however, a variable APR can result in higher payments. Variable APR loans can include:

  • Most credit cards
  • Adjustable rate mortgages
  • Adjustable rate personal loans

What is the average APR for personal loans?

Before you take out a personal loan, you’ll need to understand how they work. The average APR among LendingTree users with a 720-plus credit score who received a loan offer in Q4 2019 was 7.63%. However, the average APR rises sharply for those with lower credit scores. That’s because your credit score signals to lenders how trustworthy you may be as a borrower — and the higher your score, the better.
Your credit score is based on factors such as:

  • Your payment history
  • Current debt balances
  • Length of credit
  • Types of credit
  • Number of new accounts

Lenders will also look at your debt-to-income ratio as well as your annual income.

The loan term may also impact your APR. Loans with shorter terms, such as 12 to 24 months, are generally offered at lower rates than longer-term loans. Plus, rates can also vary depending on the loan amount.

FAQ on APRs

Annual percentage rate. It is a yearly rate that represents your cost to borrow.

The APR definition is the true cost of borrowing money, including the interest rate as well as any required fees or charges.

The interest rate is the percentage of the borrowed principal charged by the lender for the use of its money. APR includes the interest rate as well as any fees or charges, expressed as a percentage.

APY stands for annual percentage yield, and it is the amount of interest earned through a savings or other type of investment account. The APR is the annual percentage rate that a borrower is charged on a loan or other type of credit account.

Credit cards can have various APR rates, based on the type of card and how you borrow with it. They include:

  • Balance transfer APR: The rate you pay on a balance transfered from another credit card.
  • Cash advance APR: What you’ll be charged if you take a cash advance on a credit card, which begins to accrue on the day the advance is taken.
  • Introductory purchase APR: A lower-than-normal APR you pay on purchases during a special introductory period.
  • Penalty APR: A higher APR you will be charged if your credit card payment becomes delinquent.
  • Purchase APR: This is the APR you pay on your credit card purchases.

A good APR will depend on your personal situation, including your credit history and financial health. Lenders use this information when extending credit card APR offers. In addition, the type of card you get, such as a card with no annual fee or that comes with rewards, can impact the APR you are charged.

With this in mind, the average minimum APR for all new card offers is 16.77%, according to CompareCards. The lowest minimum APR is for a secured card, which is 14.7%. The highest minimum is for a student credit card, at 22.2% APR.

APRs on personal loans can vary depending on your personal credit history. But they also can vary by lender, making it important to shop around when looking for a loan. MagnifyMoney’s personal loans marketplace offers an easy way to find low-APR loans by comparing rates as well as fees and requirements for qualification.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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