Our son gets birthday money...what do we do with it? (buy, interest)

[kentuckydad95]

Our son is 2 y/o and is starting to get birthday money. We took his $100 bill and opened a savings account at the bank. The problem is that it pays one half percent interest. That is nothing in my opinion. Is there somewhere we can put that $100 (and more in the future) that will get more bang for our buck? We looked at savings bonds, but have never bought one, so I know nothing about how they work. Thanks for the input.

[treasurekidd]

US Savings bonds are no better interest wise than the banks. I would either look at an online savings account or a brokerage account. Online savings accounts with FNBO or ING Direct are paying somewhere around 1.25% or 1.50%, which isn't great, but better then your local bank branch. My own personal reccomondation would be to consider opening a brokerage account like ING Sharebuilder and invest it in good solid, blue chip stocks as long term investments for him. No minimums, low $4 commisions, and no inactivity fees, so you can invest as frequently or infrequently as you want. Good luck with whatever you choose.

[little elmer]

More important than where you put it is the lessons you're passing on to your son, even at this age.

[chet everett]

Lots of options, not as much time as you think:

College saving basics - including Section 529 college savings programs and Coverdell education savings accounts

UGMA & UTMA Custodial Accounts for Minors

Tips on TIPS and I-Bonds - Morningstar - Improving Your Retirement

[forest beekeeper]

Originally Posted by kentuckydad95

Our son is 2 y/o and is starting to get birthday money. We took his $100 bill and opened a savings account at the bank. The problem is that it pays one half percent interest. That is nothing in my opinion. Is there somewhere we can put that $100 (and more in the future) that will get more bang for our buck? We looked at savings bonds, but have never bought one, so I know nothing about how they work. Thanks for the input.

Buy a cool fun kid stock, like Disney.

As a share-holder in Disney he will then be receiving tons of junk from Disney every quarter. And when he becomes an adult he can decide.

Be open and honest with him, each year explain to him how much he has received, where the money went, and the connection that the money is making him a shareholder in Disney.



Allow me to discuss a personal story.

One set of my grandparents bought a $50 savings bond for me each year. Which were handed to me, and my mother took for 'safety'.

My other grandparents gave me $100 each year for college, starting when I was born, which again my mother took for safety and put into a savings account. When I was 17 my father withdrew my college savings account and put it into GTE stock. Then when I was 25 he gave the stocks to me. The stocks were worth $700. At the time it was equal to roughly half of bi-weekly paycheck. I was disappointed.

My mother has said many times over the years that she comes across my savings bonds, but she can never find them when I visited her. She passed away this past summer, and us siblings cleaned her house thoroughly. No savings bonds were found.

I am 50. Whether she spent those bonds on household needs when I was a child, is a possibility. Whether she spent my college fund on household needs is a possibility. I will never know.

I do know that $50 savings bonds were bought beginning in the 1950s, every year until I was 18. So somewhere 18 of them at one time existed.

Likewise with my college fund, approx $1700 went into that savings account over a period of 17 years. I do not know how much it had in it when that account was closed and it was converted to GTE stock. They did not tell me what they were doing at the time.

Interestingly this did create some level of disappointment on my part.

Had there been open honesty and the money been spent on family needs, than I can understand. But I can only understand this if I am told about it.

As it stands, even if the $1700 were still intact, it would do very little in the context of paying for college today.



Be open and honest with him. Explain where the money is going. I recommend a stock that would be 'fun' for a kid to own.

[lumbollo]

Originally Posted by kentuckydad95

Our son is 2 y/o and is starting to get birthday money. We took his $100 bill and opened a savings account at the bank. The problem is that it pays one half percent interest. That is nothing in my opinion. Is there somewhere we can put that $100 (and more in the future) that will get more bang for our buck? We looked at savings bonds, but have never bought one, so I know nothing about how they work. Thanks for the input.

I would recommend two options based on your question:

1. Buy an inflation adjusted US Treasury savings bond. These are called I-bonds and are guaranteed to always beat inflation and they have the benefit of the gain not being subject to state taxes. They are called I-bonds and everything you need to know about them can be found at this link. I believe they are currently paying 3.5% or so. Also, if you take out the paper version, you can present it to him when he comes of age. Individual - I Savings Bonds In Depth
2. Instead of savings instruments, buy him some gold or silver coins from the US Mint. Some of these from years ago are quite valuable these days. Make sure you stick to silver or gold coins and avoid the clad coins. American Eagles have been very good to their owners recently. There are also yearly proof sets. Imagine handing him something when he comes of age from every year he has been around. More here. The United States Mint Coins and Medals Programs

[Des-Lab]

Remember that we are in a recession here. We all have to tighten the belt a little. In these lean times unfortunately, the banks just cannot afford to pay high[er] interest rates because that would reduce funds needed for far more important expenditures, mainly executive bonuses.

Remember:

You need the banks.

The banks don't need you.

[Fat Freddy]

The kid is only two years old.
He doesn't even know what money is.
Buy him a new Teddy Bear and keep the rest.
If you feel guilty about doing that, tell yourself that you'll buy him a car when he's 16.