What should I do with my nieces' money?
April 18, 2013 6:52 PM   Subscribe

Some time after my second niece was born, I started sticking a couple of bucks a month into a savings account I set up for each girl. I've been plugging along for years, and now they are 9 and 12, and I have about $600 for each of them. I'd like to figure out a better way to save/invest the money than what I've been doing so far.

At the time I set the accounts up, they were ING accounts with great interest. Now ING isn't ING anymore, and those interest rates have disappeared. And now that my nieces are getting older, and at some point after they turn 18, I'll give them the money, I figure I should put it somewhere where it can grow more aggressively. But I'm not even sure where to start. All of my person money is either in savings accounts for emergencies, or in retirement funds. What kinds of accounts are good for short long term growth?

And do I need a specific account for kids? The ING account I have is a kids saving account that will convert to a regular account when they turn 18, but would it be better to have it in my name only so I can gift it to them instead of having it counted as assets when they're applying to college? I know it's not a lot of money, but I'm hoping that with time and more deposits, I can have a nice little amount to give them once they graduate high school or college.
posted by Neely O'Hara to Work & Money (10 answers total) 8 users marked this as a favorite
Back in the old days, you'd just get them t-bills or CDs, but interest rates are so low it's not even worth it. You could invest it in an index fund and get decent returns, but that's somewhat high risk on a 5-6 year time scale and you might end up with less than you started with.
posted by empath at 7:25 PM on April 18, 2013

OH -- how about a 529 plan? They can only use it for college, though.
posted by empath at 7:27 PM on April 18, 2013 [4 favorites]

529 Plan?
posted by srboisvert at 7:28 PM on April 18, 2013

I don't think the loss of those interest rates have anything to do with ING. You may have noticed a drop in interest rates in the past five years. No bank account is going to give you a good rate right now. If you could find a 10-year CD with a rate of 2%, that would be quite high. In any event, $600 is too low to purchase a CD or open any sort of investment account. And with these short time frames, putting the money in an investment account has a risk of loss, anyway.

The small amount of money really is the issue. The amount of principal you have right now is too low for interest to be a concern. Let's say the $600 for your 9-year-old niece gets put into an account with a 5% interest rate (you will not find this account today). When she turns 18, you will just have $330 or so in interest.

Just keep the money in envelopes in your house. The amount is just too small for interest rates and investment strategy to make any difference. It's not even worth opening regular banking accounts with amounts this small. Make the money grow by making larger contributions of principal.
posted by Tanizaki at 7:31 PM on April 18, 2013 [3 favorites]

Opening a Roth IRA might be more useful than a 529, especially if both you and the parents are under the income limit. Roths are more flexible since they can be used for non-educational purposes, and while they have an annual contribution limit, any additional funds that any family member might want to contribute could go into a 529 (which can be used for many post-secondary education expenses, not just college/university tuition, but also books/fees/living expenses/some vocational school costs).

If you think there are other family members interested in putting aside money for these kids, you might want to talk to them about maximizing what you all are able to do over the next several years, and see what makes sense.
posted by padraigin at 7:33 PM on April 18, 2013 [1 favorite]

SmartyPig is very easy to use and offers 1% APY. I moved my ING funds there recently. I'm not clever enough financially to manage anything else for my personal savings but I'm glad it's earning at least some interest.
posted by annekate at 2:38 AM on April 19, 2013 [1 favorite]

Just keep the money in envelopes in your house.

This is terrible advice. If you end up with $300 (or $200, or $100) of interest, that is much better than no interest. Also, what if there is a fire at home, or a burglary? It's much safer to have your money in the bank. Please don't use envelopes of cash!
posted by insectosaurus at 3:56 AM on April 19, 2013 [6 favorites]

I'm in a similar situation - until they were about 3, I was buying them occasional savings bonds. I figure after that, with a 15 year maturation, they'd already be off to college by the time it matured. So I set up a savings account for each of them - joint with me as the trustee and the kid as the beneficiary. (I'm not sure how or if this differs from the uniform gift to minor's act ("ugma"), which I've seen used on things like that in the past.) I opted for a passbook account to make it easier to track what I've put in there and when (since I just put money in once or twice a year), and so I can just hand it over to the kids when they're older.
posted by rmd1023 at 5:38 AM on April 19, 2013

One thing that might be fun is to open a trading account for each kid with a discount broker. You can discuss different investments and they can select a fund or stocks that have meaning for them.

They can then contribute to their accounts as well.

The amount of money you're talking about is perfect for this. You can grow it with continued contributions and good investments.

Amazon has some neat sounding books about investing for kids.

It could be an excellent lesson about the value of saving and investing.
posted by Ruthless Bunny at 5:44 AM on April 19, 2013 [3 favorites]

To riff off of Ruthless a bit, since I like that idea as well:
My grandpa, a retired accountant, gave my younger cousins (currently 4-ish and 6-ish) these piggy banks that they can put money from birthdays and such into, and is matching their "invest" portions for a while plus some more money upfront I'm fairly certain. He's buying them small amounts of stock in Disney, McDonald's, and I think a car manufacturing company (they're both car-obsessed little boys, I guess the other two are just children-related in a sense). The piggy bank might be a little age-inappropriate at this point, though I am not well-versed in Tween, but I like the idea of (relatively safe) stocks in something they are interested in.
posted by jorlyfish at 9:18 AM on April 20, 2013

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