2 yr old savings



so last night my wife and i had our quarterly date (sad i know, we are working on it) and during the meal we talked about the actions to close out an old bank account and move all the money into her ROTH at vanguard. that brought up another question. what to do with the custodial account we have for our 2 yr old? last we remember its a little over a grand (easy to save when all the money ppl would be buying toys give you in cash and you throw it in savings).

so we mulled over different options

  1. open a custodial account in at our high interest bank (~0.95% bet you can guess where)
  2. open a custodial brokerage account (less favorable by my wife)

that’s when the most amazing thing ever happened!!!

my wife asked, “why don’t you ask your financial ppl?”


what do you think? 1, 2, or 1 AND 2? or do you know something i don’t know and would love to share?

Update: we have a 529 but don’t want this money to be locked into it


Do you have a 529 set up yet?

What we did for our kids early on was both open a savings account at a credit union (easy to deposit gift money, etc) AND start a 529 acct.


we have a 529 but don’t want this money to be locked into it :-/ do monthly deposits into and most money he gets as gifts goes into it


Since your child won’t need the money in the next 10-16 years, I would suggest to open a brokerage account for him.

Just imagine how a 6%/y could boost the money you save for him :smiley: Of course it is riskier than the saving account, but in the long term it will yield a greater return! Note that 6% annual return is quite conservative for stocks.


I agree. Put the money in an index fund, or an index ETF like VTI, and if the market takes a big hit, buy some more. The long-term difference will be significant. Currently, 12 month CD’s are paying 1% to 1.1%, which is not even keeping up with inflation. With almost full employment if the economy grows at 3%, inflation is likely to increase which will further erode the value of long-term low-interest savings.


First, what is the purpose of the funds? Is it for college? Is it for your child to use when he/she is older (since at least part of the balance was made up of gifts to the child)?

If it’s for college use, I’d opt for the brokerage account (at Vanguard) and purchase low-cost index ETF’s or a long term target retirement fund like the 2060 (which is 90% stock). Target Retirement funds at Vanguard require only $1,000 to open and give you a lot of diversification and will automatically rebalance for you. Note: Be sure to start backing off the risk when your child enters high school, so you’ve moved out of the market by the time they start college. At that point your time frame is short and (IMO) if you don’t have 5 or more years to invest, you shouldn’t be in the market!

If it’s for his/her use, I’d probably still use a target retirement fund, but perhaps ease up on the equity portion slightly. I’d hate to see the funds suffer a large loss just before he/she wanted to, for example, buy a car at 16 years old.



Once our two kids cross 1k apiece their accounts go to a brokerage setup. Simply put over 18 years from now it’s highly unlikely any other investment will have a higher return.


Great question and something that I’ve thought about recently too as I have a 3 1/2 year old and a 7 month old. I wanted to open a custodial brokerage account because 1) I want to save/invest for them 2) teach them about investing. However, one down side I was considering is that the custodial account will have a bigger negative impact on financial aid versus the 529 plan.


Your wife is very smart…you should probably keep her around. :wink:

Being you have a 529 started already, I agree with the others. Open a Vanguard or Schwab account and invest in index or the S&P - as of now, Schwab has lower fees but Vanguard has longer rep. It’s up to you but you can’t go wrong either way. I don’t have kids, but I have some feelings about 529’s based on the fact I didn’t go to college. I think it is a great plan to use (especially if you have multiple kids and can transfer funds) but having control of the money in the event they don’t go to school is more appealing to me. Anywho, my two cents. Either way, you can’t go wrong if you are saving!!


Why not open both? The money you want to have available for short term can be put in savings and then open a Schwab account for longer term investment.
I just opened a Schwab Custodial IRA for my 15 year old since he has W2 income at now. I went with Schwab because of the free ETFs plus my group 401k is managed by Schwab.