What’s the Best Savings Account for a Teenager?

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It’s never too early in life to start saving and investing.

I envy today’s teenagers who have the opportunity to enjoy compound interest for that much longer than I do. But it takes discipline, and often financially savvy parents, to get a young person to buy into the sober idea of extremely delayed gratification.

If you have a teenager willing to save, at which institution should you open an account for them?

That’s what a listener of the Clark Howard Podcast recently asked.

Where Should My Teenager Open a Savings Account?

Where should I open a financial account for my teenager?

A parent wanted Clark’s opinion on the topic on the Jan. 18 podcast episode.

Kim in California asked: “What is the best PERSONAL savings plan for a teenager? One that they can add to each month.”

Typically, when you think of a savings account, you think of a bank. But Clark had a different institution in mind.

“I love, love, love for a teenager to go to Fidelity Investments. They’ve done a better job than any other financial organization at introducing teenagers to the habit of saving and investing,” Clark says.

“It’s a great place for a teenager to get introduced because Fidelity allows a teenager to have some degree of control over the account and build a savings and investment habit for a lifetime.”

Fidelity doesn’t offer a savings account. However, it does offer a cash management account that’s currently paying 2.21% APY. You can invest with the money you hold inside the account as well.

Clark recommended Fidelity’s money market accounts as a savings account equivalent. He also recommended that Kim point her teenager toward a Fidelity IRA, especially if he or she is working. Finally, he referenced the Fidelity Zero funds that allow you to invest without paying a cent in management fees.

“The amount of money your teenager has to have to open an account at Fidelity Investments? One dollar. That’s it,” Clark says. “A dollar saved as a teen is so much more powerful than a dollar saved in somebody’s 20s or 30s or beyond.”

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Want a True Savings Account? Consider Looking Elsewhere

If you’re specifically looking to open a savings account for a teenager, I agree with Clark that you need to avoid the Big Four banks — Bank of America, Chase, Citibank and Wells Fargo — along with big regional players that don’t pay competitive interest rates.

But if you’re looking for a good savings account that pays a competitive interest rate, check out our best high-yield online savings accounts.

There’s some variance even among our “best” list. But most of those accounts are paying somewhere in the neighborhood of 3.5% APY. That’s considerably better than what you’re getting from a Fidelity cash management or money market account right now.

Of course, in the long term, a teenager can expect to make much greater returns by investing money rather than putting money into a savings account. And if your teenager is eligible to open a Roth IRA, they’re at an even greater long-term advantage.

Final Thoughts

Getting your teenager in the savings account that will grant him or her the most yield is a nice luxury.

Building habits of saving and investing in your teenager that will set them up financially for decades to come is even more impactful.

Plus, any dollar your teenager saves or invests potentially has many decades to compound upon itself.

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