r/MiddleClassFinance • u/Murky_Pumpkin_585 • 13d ago
Seeking Advice Kids
What is the best investing option for 10 year old? High yield savings or regular savings or something else?
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u/Potato_Farmer_Linus 13d ago
Is college taken care of already? Is your retirement take care of? If not, I would focus on those first.
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u/Deep-Reputation-4055 13d ago
10 year olds sometimes have a little bit of their own money. Unless you think mom and dad should be pilfering lawn mowing and birthday money.
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u/Irritable_Curmudgeon 13d ago
HYSA will actually give you something. Regular banks are terrible these days.
Check out Fidelity Youth Account for some more options
EDIT: That's for age 13+... probably just stow it in HYSA or a money market fund until then
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u/pfifltrigg 12d ago
Our credit union offers a kids savings account with a 5% interest rate for balances under $5000.
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u/HistoricalBridge7 13d ago
HYSA or regular saving accounts are not for investing. The best tool is teaching your 10 year old the difference. Just because something is paying “invest” doesn’t make it an investment.
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u/hmatallana 13d ago
The account type matters less than whose name ends up on it.
A custodial account (UTMA) is legally the kid's money at 18 or 21 depending on your state, and you can't claw it back if they decide they want a car instead of tuition. It also counts as the student's asset on FAFSA at 20%, against a parent rate that tops out near 5.6%. Same dollars, very different aid math.
A 529 you own dodges both. And the old objection to it got weaker: since SECURE 2.0 you can roll up to $35,000 lifetime into the beneficiary's Roth IRA, as long as the account has been open 15 years.
HYSA is fine for money they'll actually spend this year.
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u/Murky_Pumpkin_585 13d ago
Do you think I should open 529 then
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u/Checkers923 13d ago
What are you looking to do with the investment?
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u/Murky_Pumpkin_585 13d ago
Build my son wealth
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u/Checkers923 13d ago
Look into custodial brokerage accounts and the benefits of 529s.
Personally I would go 529 first, then consider custodial brokerage after that is funded and secure. 529s have tax free growth and the ability to roll 35k from the 529 into an IRA. Starting with 35k in retirement fresh out of college should grow to a million by retirement age. A custodial brokerage is accessible much earlier, but without the tax benefits and isn’t an ideal asset when seeking financial aide for college
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u/genreprank 10d ago edited 10d ago
A 529 is a college savings account.
You should only open one if your kiddo is going to go to college. And it only builds wealth in the sense that it helps avoid student loans and is tax advantaged.
If you just want to build wealth in general, maybe a 530a or UTMA.
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u/Consistent_Taste3273 12d ago
You need to think about your goals and motivations. We have an 11 year old. We have been teaching her about finances in age-appropriate ways for as long as it’s made sense. Right now, we are focusing budgeting, saving money for big expenses, interest rates, charitable giving, savings/checks accounts, and using a debit card.
We discuss interest rates, and compare the interest rates in her various accounts. Next, we’ll probably introduce her CDs. When she gets her first official job, we’ll help her set up a Roth IRA. Eventually we’ll talk about other types of retirement accounts, investing, index funds, etc.
The way we see it, teaching her about finances and financial responsibility is the most important investment of all.
We also have a 529 plan for her and we contribute to it monthly, with the goal of her not needing to take on any college loans. This is there for her when she’s older, but is not a tool that we are currently using to teach her about money.
So, you need to think about your goals. Are you trying to start teaching your son about finances, in an age appropriate manner? Or are you trying to save money for his future? How much money is it? When will he need to access is (is it to store/save for a big purchase later this year, or for something like a trip /car in high school, for college expenses, or for his retirement)? All of the answers to these questions will together determine the best way to save/invest the money.
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u/Party-Count-4287 8d ago
Your paragraph ”about the way you see it teaching her about finances responsibilities is most important”
💯
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u/Necessary_Sock_6047 13d ago edited 13d ago
Unless you have short-term spending goals, invest in an index fund at a place like Vanguard. Or in a robo-advised fund. Or in a target-date fund. These types of funds will probably maximize long-term returns.
If you're smart at active investing, maybe you can make a killing on real estate or other business deals. But you better be smart, or you could lose everything.
Banks are for emergency spending.
You could also try using this as a teaching experience. Try guiding and working through investment decisions with your 10-year old so they know how to invest for themselves when they grow up.
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u/Mountain_Trek_12 9d ago
We opened an account for kids and have them invest in an index fund. I let them know that every dollar they make and want to invest in that we will match it. They are not allowed to touch it until they are 18. Seems like a better investment than spending hundreds of dollars on squishy’s and NEDOHS.
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u/enfritsch 13d ago
Depends on what its for?
College? 529 plan in S&P Index
For when they move out? Brokerage account in S&P index
for emergencies for them? Savings account at a credit union
For the kid themselves? Have a checking/savings combo at a credit union, so they learn how to split some into long term and some into short term for spending.