When should you open a bank account for your child?

Most parents wonder whether or not to open a bank account for their child very early on. And banks know this – a large number of them offer preferential rates for clients aged 0–18, and sometimes even beyond that. But do they really need a bank account? If so, what is the right age and what would they use it for? Should the account have restrictions? Should it come with a bank card? Read on to find out the answers to these questions!

Opening a bank account for your child allows them to save money for the future, or helps you introduce them to the concept of budgeting by letting them access some or all of their pocket money. While we understand that each family has its own set of values and priorities, it should be noted that the question of opening a bank account – when not exclusively used as a means of saving money – is closely linked to the idea of pocket money.

“You’re not old enough!”

Before we talk about the benefits of one account or another, it is important to clarify that minors are unable to open an account whenever they like or use it however they want. In the Grand Duchy, minors can’t open a Luxembourg bank account or savings passbook without their legal guardian until they are 12. Before they turn 16, your child can’t withdraw money from their account or passbook without your consent, assuming you are their legal guardian. At 16, they can withdraw money without your consent unless you explicitly object.

This being said, we advise that you take the initiative as a parent to open an account on behalf of your children so that you can keep control over the situation. Ultimately, you are legally responsible for the account until they reach 18, even though you won’t have the right to use it however you like. If your child is old enough to understand, take them to meet your banker – it’s an opportunity for them to get out and learn what a bank is, and how it works.

A savings account is not a current account!

There are two reasons for opening an account for your child.

• A savings account will help them put some money aside for higher education, their first car or even their first home. You can put a restriction on the account until your child turns 18 to help them save money. They come with the promise of security, a special interest rate, no account maintenance fees, and a small bonus to start you off. Once the account has been opened, you and your loved ones can pay into it, as can your children once they reach a certain age. It can be the ideal solution – as long as you bear in mind that if the account is in your child’s name, the funds belong to them, not you. And once they turn 18, your children will have free access to the funds, even if only to party with friends or buy things that you consider pointless, rather than pay for their studies or first car.
• A current account, managed by them, is one in which they can put their pocket money or other cash they receive.

“Mummy, when can I have one?”

When it comes to savings, nothing is stopping you from opening an account in your child’s name as soon as they are born! We would even encourage this, as it gives you more time to build a solid nest egg. Even if you only contribute a small amount each month, 20 years later it will have snowballed into something significant.

The start of secondary school at age 12 is also a good time to open a current account.

When it comes to eventually letting your child manage a current account, it all depends on how mature they are. Money management implies a solid grasp of basic mathematics (addition and subtraction). That’s why we start giving pocket money at around 8 or 9 at the earliest, to teach children how to handle it. The start of secondary school at age 12 is also a good time to open a current account. Banks have caught on to this, and they will often offer a new package including a current account and a debit card once your child reaches this age.

“But I want it now!”

Would you prefer a savings account that is restricted until the age of 18, or a freely accessible current account for withdrawals and deposits? How about combining the two? This means you can start saving money on the restricted account right from the start, and your child can begin to manage the deposits and withdrawals on their current account when you feel they are ready.

Much better than a piggy bank

You can also open an account for your child as part of broader financial planning. While this is not the main aim of this article, we would like to point out that simpler and more attractive savings plans  than a savings account do exist. For example, there are special mortgage insurance or savings schemes tailored to children that grant certain tax benefits. However, you should make sure you understand the specific constraints or restrictions that may apply to these products.

“You’re already 16!?”

All major banks in Luxembourg offer banking products tailored to young people, whether they are in school, college or university: savings accounts, current accounts, accounts that are restricted until the age of 18, unrestricted accounts, with or without a debit or deposit card, and so forth. Based on the options available, it’s up to you to choose what’s best for your child. Note that the features of some youth accounts can be adapted to the account holder’s needs as they grow up.

In short, opening a bank account for your child is definitely a good idea! The real question, then, is what the account will be for and what features it should have. Should you put a restriction on the account, or entrust the daily management of it to your child? You could argue either way: one will help them save, the other will teach them about spending. Regardless, there are valid reasons for choosing either one, and nothing prevents you from considering both options.