I’m a brand new mother, so naturally I can’t watch for my daughter to stroll, discuss, and begin investing. OK, perhaps that final one is simply me since I work for Investopedia. However the sooner I begin instructing her the worth of compound curiosity, the higher off she’ll be in 18 years.
Now, you could be pondering, “If she works for Investopedia, why is she asking ChatGPT which accounts to open for her 4-month-old daughter?” Effectively, ChatGPT might not all the time be proper, and it could supply contemporary views. And if you’re simply getting again to work after maternity depart and performing on 5 hours of sleep an evening, your mind doesn’t all the time work prefer it ought to. So, I consulted one of many hottest synthetic intelligence (AI) bots in the marketplace to see if its solutions aligned with what I assumed can be finest for my daughter.
What Accounts Ought to I Open for My 4-Month-Previous Daughter?
I requested ChatGPT to behave as a finance professional and inform me what accounts to open for my daughter. Right here’s the precise immediate I used:
You are a finance professional. What financial institution and funding accounts ought to I open for my 4-month-old daughter so we will help her get monetary savings and make investments for her future?
ChatGPT got here again with the next listing of accounts (verbatim):
- Custodial accounts (UTMA/UGMA)
- 529 plan
- Excessive-yield financial savings account
- Roth IRA for youths
- Sequence I bonds
A couple of of those are nice suggestions for my daughter, whereas others is probably not the best match for her presently. Plus, it missed one key monetary account I’ve been hoping to open in 2025 and one other new choice which may make sense for my child. Extra about that beneath.
Custodial Accounts
There are two kinds of custodial funding accounts:
- Uniform Items to Minors Act Account (UGMA)
- Uniform Transfers to Minors Act Account (UTMA)
I can open each kinds of custodial accounts by a brokerage agency to put money into shares and different securities, after which switch the earnings and investments to my daughter when she’s a authorized grownup (often 18 to 25, however the age of majority differs by state). A custodial account will permit my daughter to make use of the cash for something she needs sooner or later, like faculty tuition, shopping for a home, or touring. Plus, custodial accounts haven’t any complete contribution limits. The one draw back is that we are going to pay taxes on the earnings.
529 Plan
I’m undecided about opening a 529 plan for my daughter. A 529 plan is an funding account that enables anybody to contribute, and the cash can then be used for certified training bills reminiscent of books, tutoring, faculty tuition, and extra. Nevertheless, I’m unsure how a lot these issues will truly value us, and whether or not or not she’ll even wish to go to school.
If I don’t use the cash for certified training bills or faculty tuition, then I could possibly roll it over right into a Roth IRA, however solely as much as $35,000. So the remaining cash would go unused until I switch it to a professional member of the family.
Excessive-Yield Financial savings Account
Amongst all of the accounts on ChapGPT’s listing, a high-yield financial savings account (HYSA) affords essentially the most flexibility in how you should utilize your cash. Excessive-yield financial savings accounts pay glorious rates of interest—as much as 5.00% APY—and permit you to withdraw the cash when wanted.
I can open the account in my daughter’s title, too. And since she’s within the 0% tax bracket, she’ll keep away from paying taxes on her earnings. Nevertheless, high-yield financial savings accounts for youths—the type I can open in her title—usually have a most stability for incomes the very best charge (reminiscent of 10.38% APY solely on balances as much as $1,000). I’ll possible open a brand new HYSA in my title and simply pay the taxes on it in order that I can select the account I need and save as a lot as I can for her future, with out limits on the quantity of funds that may earn the upper charge.
Roth IRA
ChatGPT instructed I open a Roth IRA for my daughter if and when she has earned earnings, like from a job. That’s the catch—you want earned earnings to fund a Roth IRA, and the overwhelming majority of 4-month-olds (with exceptions like child fashions or actors) don’t earn earnings, together with my daughter. So I might be skipping this selection for now.
General, Roth IRAs will be an effective way to avoid wasting for retirement and may benefit her in the long term due to the best way a Roth account affords tax-free progress with after-tax {dollars}. However a Roth IRA will not be essential to get her funds began. If and when she begins working, I’ll look into opening a Roth IRA for her.
Financial savings Bonds
The final monetary account ChatGPT really helpful I open for my 4-month-old is a financial savings bond or Sequence I bond. An I bond is a fixed-interest account with a charge that’s primarily based on the inflation development from the prior six months. It’s designed to guard your cash’s buying energy from inflation. The speed has two elements: one is mounted for the lifetime of the bond, and the opposite is listed to inflation. The latter charge modifications each Might and November.
You purchase an I bond by the Treasury Division. You possibly can’t contact the cash for the primary 12 months, and in the event you money it in throughout the first 5 years, you’ll lose the final three months of curiosity.
Proper now, new I bonds include a charge of three.98% for the primary six months. That composite charge will change on Nov. 1. Opening an I bond now can let me benefit from a very good charge, but it surely’s not a lot totally different from what I might earn with a CD or a financial savings account. These accounts have the benefit of providing extra versatile withdrawals, and can be found at all kinds of establishments.
So What Did ChatGPT Miss?
The accounts GPT instructed had been all in keeping with what I used to be contemplating for my daughter to set her up for monetary success. Nevertheless, ChatGPT failed to say a few different accounts.
CDs
One financial savings car that’s been on my thoughts: a certificates of deposit (CD). CDs supply mounted rates of interest for a time frame, like one or two years. With the very best CD charges in 2025 nonetheless above 4.50% on phrases of 6 to 19 months, now would possible be a good time to deposit cash in a CD for my daughter. As soon as the CD matures, I might roll it into one other CD or transfer it to the high-yield financial savings account.
For instance, let’s say I deposit $5,000 right into a 6-month CD with a 4.60% APY on Aug. 1. By Feb. 1, earlier than my daughter turns 1, I’d have over $113 in earnings. I might then take the $5,113 and transfer it to her HYSA, one other CD, and even her brokerage account to proceed rising her cash.
Trump Account
One other account ChatGPT failed to say—and probably as a result of it’s so new—is the brand new Trump account. I might open a Trump Account since my daughter was born in 2025, and the federal government would deposit $1,000 into it, utterly free. After that, I might add my very own $5,000 per 12 months. The account would make investments the cash in order that it tracks a inventory index. If I left the account sit with simply $6,000, and the inventory index returned a conservative 5% annual return, by the point my daughter is eighteen, she’d have over $14,000. If I added $1,200 per 12 months after the primary 12 months, she’d have over $45,448.
In fact, returns are by no means assured with the inventory market, so there’s an opportunity we might lose cash, however it could be well worth the threat since time and compound curiosity can be on our aspect with my daughter’s longer investing horizon. The downsides are that the cash within the Trump account can solely be used as soon as my daughter reaches age 18, and it may well solely be used for a restricted variety of issues, like shopping for a home, faculty tuition, or beginning a enterprise. A brokerage account could possibly be a greater transfer for flexibility.
The Backside Line
With so many choices, it’s onerous to select only a few accounts to get my daughter began. I plan to open a high-yield financial savings account, a custodial brokerage account and/or a Trump account, and a CD for my daughter. She’s solely 4 months outdated, so I’ve lots of time to let the compound curiosity work for her. Sooner or later, I can all the time open a 529 plan, a Roth IRA, and an I bond if these choices match her circumstances at the moment. What issues most is getting began in order that she has a very good monetary basis for when she turns into an grownup with goals of, say, going to school, proudly owning a house, or one thing else. It’s the least I can do for my youngster.
How We Discover the Finest Financial savings and CD Charges
Each enterprise day, Investopedia tracks the speed information of greater than 200 banks and credit score unions that provide CDs and financial savings accounts to prospects nationwide and determines every day rankings of the top-paying accounts. To qualify for our lists, the establishment have to be federally insured (FDIC for banks, NCUA for credit score unions), and the account’s minimal preliminary deposit should not exceed $25,000. It additionally can’t specify a most deposit quantity that is beneath $5,000.
Banks have to be accessible in not less than 40 states to qualify as nationally accessible. And whereas some credit score unions require you to donate to a particular charity or affiliation to change into a member in the event you do not meet different eligibility standards (e.g., you do not dwell in a sure space or work in a sure sort of job), we exclude credit score unions whose donation requirement is $40 or extra. For extra about how we select the very best charges, learn our full methodology.
