Teen Checking Account

A teen checking account is a transaction account that a bank or credit union markets to customers under the age of majority, normally opened jointly with a parent or guardian, and normally packaged with a debit card, no monthly maintenance fee and some form of parental visibility or control. The banking functions are the ordinary ones: deposits, a card, transfers and bill payment.

The name is a product name. There is no legal category called a teen checking account, and nothing in banking law defines the term. What a bank actually opens is a joint deposit account on which a minor is one of the co-owners, and every legal consequence of the arrangement follows from that rather than from the marketing label.

The distinction that matters most is between this account and a custodial account under a state's Uniform Transfers to Minors Act. Both involve a child's money and an adult. They are not the same arrangement: property in a transfers-to-minors account is an irrevocable gift vested in the child from the moment it goes in, while a joint deposit account is simply owned by two people who each have withdrawal rights.

Why the account has to be joint, in the regulators' own words. The five federal banking agencies addressed this directly in their 2015 youth savings guidance. Answering whether there are restrictions on minors opening savings accounts, the agencies wrote: "No federal law prohibits minors from opening savings accounts. Rather, a deposit account relationship is based on a contract governed by state law. In general, minors are deemed to not have the legal capacity to enter into a contract, including opening an account at a financial institution, meaning that a contract with a minor is potentially 'voidable.' However, some states specifically allow a minor to open a savings account. For example, the State of Washington permits a minor to enter into a valid and enforceable contract for a deposit account with a financial institution. States also have different legal definitions of 'minor.'" The bank's exposure is that a voidable contract can be disaffirmed by the minor, so an adult co-owner is the ordinary way institutions get an enforceable agreement. Note the shape of that answer: the barrier is not federal, the rule differs by state, and even the age at which someone stops being a minor is not uniform.

The debit card is what decides the titling, and this is the point readers most often have backwards. Asked whether a minor with a custodial account can be issued an ATM or debit card, the same guidance answers: "The Uniform Transfers to Minors Act or Uniform Gifts to Minors Act of each state governs custodial accounts for minors. As a general matter for custodial accounts, a custodian manages the funds in the account on behalf of a minor, meaning the minor would not be able to withdraw funds without the custodian's approval. Therefore, a minor with a custodial account should not be provided with an ATM or debit card that permits withdrawals." A teen account exists so that the teenager can spend from it. That requirement is incompatible with custodial titling, so the account is titled jointly instead, and the choice between the two structures is driven by the card rather than by any tax or ownership preference.

What joint titling means for whose money it is. In a joint deposit account each co-owner has withdrawal rights, so a parent can move money out as well as in, and depositing money into the account is not by itself a completed gift to the child. That is the practical difference from a transfers-to-minors account, where the transfer is irrevocable and the property is the child's from the start, to be handed over outright at an age the state's statute sets. Families who want the money to be unambiguously the child's are choosing the wrong product with a teen checking account, and families who want the money spendable by the teenager are choosing the wrong product with a custodial account.

Every consumer protection applies, and the guidance lists them. Asked whether consumer protection laws reach accounts held by or for the benefit of minors, the agencies answered that they do, naming the Children's Online Privacy Protection Act, the Electronic Fund Transfer Act and Regulation E, the Expedited Funds Availability Act and Regulation CC, the Truth in Savings Act and Regulation DD, and the prohibitions on unfair or deceptive acts or practices. In practice the ones a teenager meets are Regulation E, which governs liability for an unauthorized debit card transaction and the procedure for reporting one, and Regulation DD, which governs how the account terms and fees must be disclosed.

What happens at majority is a product rule, not a legal event. Nothing in law converts the account when the child turns 18. What happens instead is set by the product: a bank that markets a youth account states an age at which it ends, and at that point the account is converted to one of the bank's standard checking products, on that product's fee schedule, with the co-owner removed if asked. Because the terms are the bank's own, the age and the resulting fees differ between institutions, and the conversion is the moment to compare the standard product against alternatives rather than to accept it by default. The account's history stays with it, which is one reason families open one early: the teenager arrives at adulthood with an existing banking relationship rather than a cold application.

Opening one runs the same way at most institutions. The adult and the minor both appear, in person or through an online flow that verifies both, and both are identified. The account is titled jointly, the adult signs as a co-owner, and a debit card is issued to the minor with whatever spending limits and alerts the product offers. The adult can usually see every transaction, set limits, and move money in or out. At the age the product specifies, the bank converts it.

The economics are mostly about fees, and a hypothetical shows why the youth product is worth having while it lasts. Suppose a standard checking account at the same bank charges $12 a month in maintenance fees unless a balance requirement a teenager will not meet is satisfied, and $2.50 for each out-of-network ATM withdrawal. A teenager making two out-of-network withdrawals a month on the standard account would pay 12 x 12 = $144 a year in maintenance fees plus 2.50 x 2 x 12 = $60 a year in ATM fees, or $204 in total. A youth account that waives the maintenance fee and reimburses a couple of ATM fees a month costs nothing on the same usage. The saving is not the reason to open the account, but it is a real number and it disappears at the conversion age, which is why the conversion is worth a decision rather than a default.

A second hypothetical shows the titling difference. A teenager deposits $600 of summer earnings. In the joint teen checking account, the money is owned by the teenager and the parent together and either can withdraw it; nothing has been given away. Put the same $600 into a transfers-to-minors custodial account instead and it belongs to the child irrevocably, the parent can spend it only for the child's benefit, and it must be turned over outright at the age the state's statute sets. Same $600, same two people, two different sets of rights.

What the account is good for

• It gives a teenager a card and a balance to manage, which is the only way the habit is actually practiced.
• Joint titling gives the parent visibility and the ability to intervene without taking the money away from the teenager's control.
• The consumer protections that apply to any deposit account apply here, including the error resolution procedure for an unauthorized card transaction.
• Youth products commonly waive maintenance fees, and the account carries its history into adulthood.

The honest drawbacks

• A joint account is jointly owned. The parent's access is real, and so is the teenager's ability to withdraw everything in it.
• Because it is a joint account rather than a custodial one, it does not make the money the child's, which families sometimes assume it does.
• The favorable terms end at a product age set by the bank, and the account can roll onto a standard fee schedule if nobody looks.
• Overdraft exposure is real on a card-linked account, and the rules on when a fee can be charged depend on choices made at account opening.
• The account has no investment function, so money that should be growing for a long horizon does not belong in it.