Where to Find Higher Savings Yields for Your Kids

Q: With rates so low, it’s hard to convince our child of the benefits of saving. What can I do to find higher returns to encourage saving?

A: Remember when Mom or Dad took you to the bank and you opened your first savings account? Or maybe the bank came to your school. Either way, you put your money in a bank account and watched the numbers in your passbook grow. Today, though, with interest rates on the average savings account under 0.21%, those numbers aren’t growing very fast.

There are other ways that your kids can get a better deal, though they don’t involve a trip to the bank with Mom or Dad. One way to go is to buy I Bonds, which pay a base rate plus an interest rate that’s pegged to inflation. I Bonds are currently paying 1.74%, but that rate will change on Nov. 1. If you want to give your child the hands-on experience of an actual paper bond, you pay the face value of the bond, with a minimum purchase of $50. If you go through Treasury Direct, you can buy bonds in any amount over $25, to the penny.

Another option is to go online. There are several Internet banks that pay interest rates that are four or five times higher than what you’ll get at your local brick-and-mortar bank. Do your homework, however; many of these banks have minimum deposits and may charge a monthly maintenance fee. Currently, American Express Bank is paying 1.30% while Ally Bank is offering 1.24%, with have no minimum requirement and no monthly fees. Check out SavingsAccounts.com or BankRate.com for a list of online banks.

In some areas, banks are coming back into the schools and offering higher-than-average returns on student account. According to the FDIC, about 40 banks around the country, mostly smaller community banks, are offering in-school savings programs in elementary schools, with accounts that frequently pay higher rates than adults can get at the same banks. At Cardinal Bank in McLean, Va., for example, Kid’s Club members get an interest rate of 2.482% on the first $1,000 in deposits, compared to 0.25% that grown-ups get on regular statement savings accounts.