Dear boys: The other day I took you to the bank.
A physical bank, which may or may not exist by the time you’re an adult.
We went to close the savings accounts you’ve had since you were little.
Why? Because they were earning 0.02% interest. It was pitiful, to be honest, especially since you can earn over 1% easily in an online bank.
About This Series: This is a series of letters to my children, ages 15, 11, and 3, about money, success, frugality, and financial freedom. I hope this series
What’s In Your Savings Accounts
When you were very small, sometimes you would get cash or checks as gifts for your birthdays and Christmas. You were too young at the time to use them as lessons in wise spending and shopping.
After all, you barely knew what money was. I thought hard about what to do with these gifts. I could have put them into your college savings accounts – and in fact, those gifts would have earned you more money there.
However, I thought it would be a good idea to save those gifts instead. Why? A few reasons. One was so you could spend them at a future point in time. After all, the giver was intending for you to spend them on something for yourself.
And bonus – not only could you one day use the money to buy yourself something fun (a gift from the past!), but I could teach you about savings accounts and interest at the time time. Fun!
So I thought a small savings account would be fun, and would help with both things. What a brilliant idea!
Why A Brick and Mortar Bank Account
Why did you have an account with a brick and mortar bank in the first place? I was hoping that you having a physical book that showed your savings and interest would be helpful when you were little. After all, little kids have a hard time grasping money when it’s intangible.
Handing a $20 bill to a bank teller, having them put it in your book, and letting you see that money added to your book (with interest!) was going to help motivate you to save.
It worked that way for a while, until it didn’t.
You see, back when I opened the first account for you in 2003, banks paid real interest. Amazing, I know. But you would get a quarter or so each month. It wasn’t much but your balance was very low, and it seemed like a lot to you at the time.
It was fun to head to the bank and be able to show you that your money had made money, for doing nothing!
The Great Recession Hits
Then 2008 happened, and interest rates went to nothing.
And I hoped it would come back. But it never did.
Getting a penny in interest isn’t very motivating. I suppose I could have kicked in some “parental match”, but I didn’t. Honestly, I’d forget about the accounts for long periods of time.
And when I remembered them, and went to the bank to have them updated, I wasn’t excited to show them to you anymore. No, instead I was almost embarrassed. You probably found more money on the ground walking into the bank than you would get in interest.
The Start Of Rising Rates
Last year I was at the bank and saw they had CDs (Certificate of Deposit), paying over a percent of interest each. I lept at a chance to show you what some REAL interest looks while until.
CD’s, just like savings accounts, paid nothing at all for a while. But these were 1.4%, which was more than I was getting at the time in my online savings account.
So your savings accounts went into those. I told you about it when I got home, but you weren’t that interested.
The CD’s Renew – And We Close The Accounts
This December, I got a notice in the mail that those CD’s were maturing
Plus, it was time to move to the digital money world. You’re old enough now to understand virtual money. And the world has changed a lot since I opened that first account for you in 2003.
Off to the bank we went. Nick, since you’re a teenager now, I thought it was a good time to have you do your own banking transactions. And you did.
Although… you didn’t know how to sign your name, because they don’t teach cursive in school anymore.
But you did a wonderful job cashing your birthday check, closing your old CD, and closing your old savings account. Even though you printed your name.
Nate and Alex, since you’re younger, I took care of your banking transactions for you.
Once we were home, I talked to you guys about the new accounts we were going to open. We opened new CDs and kids savings accounts at Capital One. They’re paying 2.7% and 1%, respectively. I’ve also set up your allowance to auto-draft into the savings account. Welcome to the 21st century!
Lessons Learned
There are a few things I hope you learned from this experience:
- How to take care of your own banking transactions
- How to close savings accounts
- What a CD is, and how it’s different than a savings account
- The importance of researching interest rates
And I learned a few important lessons too
- If something’s not optimal, it’s easy to ignore for long periods of time. Don’t do that. Just take care of it.
- If you’re still with a physical bank, do your research. Even if you don’t want to move your account, there might be better options. Especially recently. The bank had several CD’s near 2%. Better than their 0.02 %.-
- I need to teach my kids how to sign their names. Because schools don’t do that anymore, and you still need to be able to sign things
The Importance Of Teaching The Next Generation
This whole experience also made me realize there’s now a generation of kids who have grown up not earning any interest on savings. They haven’t needed to know what a CD is, or how to research interest rates, because everything paid almost nothing.
We’re entering a time of rising rates, where interest is going to be more than a penny. These skills will be needed again. So as your mom, I hope you’ve taken these lessons to heart.
Love, Mom
Question for the readers – how are you teaching your kids lessons on how savings accounts and CD’s work?
Comment below to give some ideas to your fellow readers.
Great lessons! But shouldn’t someone be teaching kids how to sign their names!
I have been working on it with Nathan. He almost knows how to do it.
“Although… you didn’t know how to sign your name, because they don’t teach cursive in school anymore.”
Yup! Our kids are the same way. I’m also not entirely sure that my kids could mail a letter at the post office – again, just not something people do nowadays! Crazy.
Great article though. It’s easy for us as parents to forget to impart money lessons like this on our kids, but it’s still very important to do so. Like you, we try to find teachable moments like this. For example, back when those two lottery jackpots were crazy high, my daughter asked us why they paid out so much less if you took the money all at once. This led to a lesson on compound interest, which my oldest thought was pretty amazing. (We also went through the probability calculations to show her how infinitesimally small her chances of winning would be – basically worse than getting struck by lightning twice.) Not sure if that’s a great example or anything, but you take what you can get…
By the way, Alliant Credit Union – an on-line bank where my family does most of our banking – offers 2% on their kids savings accounts. (Link: https://www.alliantcreditunion.org/bank/kids-savings-accounts). Maybe something to check out?
Thanks-I’ll need to take a look at that one! The more interest you earn, the better the lesson. 😃
It is a bit depressing with the savings rates we can get that it almost makes trying to teach my daughter about savings and interest have little impact.
Online savings rates are better but still you have to have a large balance to make meaningful amounts that a teenager would be impressed with and encourage to save.
But you have given some very good lessons despite this and hopefully your kids and mine will pick it up and carry the torch
Good idea! I’ll have a signature lesson with my classes this year!
Love this! I need some ideas for getting our five-year-olds attuned to money concepts. Wouldn’t it be great if they grew up in a world with simpler rules around saving, investing, and so forth? Sadly, it’ll probably continue to get more complex!
My 6yo wants to be able to read and write cursive – I might try and find some tracing printables she can practice on.
In terms of money, we’re starting her on an allowance this year of $2/week. For now kept in cash so she can learn how to budget it and understand change. Eventually we’ll switch to a bank account but for now we think the basic math practice is important.