I have 2 children under the age of 4, with a combined total of around $3k in their savings accounts. Every birthday/holiday we put their money into their accounts, and don't keep any of it ourselves. We want them to have something to use for college/investing when they come of age, but obviously we are in charge of it until then. I don't want to put it in a 529, since I don't want to limit it to college, and CDs are practically worthless nowadays... what other options do I have? My wife wants to leave it in savings earning less than 1%, I want to invest it in a dividend paying stock (preferably a DRIP). What else would you suggest? An easy compromise would be much appreciated.
I do understand the fear of putting your children's money into the stock market, however there are some pretty safe stocks the could grow more than the 1% you are receiving with the savings account. I know with my bank they offer adults interest bearing accounts of different types. We have one that is in our name with the children as a beneficiary (just in case) that draws 2.5%. It's not that good but it is safe and they have access to it anytime they need it. Mine are 14 so they will use the account for cars and college. The account can be used with an ATM/Debit Card which I like since they will be needing gas, food, ect. money soon. Since you have more time before they need it there may be better options. I am no expert by any means just a thought!
You know normally I would say savings, as your children will be expecting this lump sum, and by doing stocks you will risk them being let down when they need the money. However with savings rates so low, and real terms inflation high I think some level of investment would be worth it. I would put some in savings and some in Gold. It's cheap enough at the moment after falling $600 from it's peak, and even if it does fall further long term, by the time your children need the money it will have appreciated substantially.
Sotally, I love that you have put your children's money in savings! When I was little, my parents had my sister and I put half of all of our birthday, Christmas ect money in our seperate savings accounts. (A savings account for my sister, and a savings account for myself.) When I graduated highschool, I then used the money in my savings to help pay for college. It was great to have the extra money that I had saved! I think keeping it in savings is a great option! However, I do think investing part of it would be extremely beneficial as well. I wish I could offer better advice as to where to invest the money, but I don't feel I have quality advice on investments. I know that I truly apperciated later in life that my parents were persistant and encouraged my sister and I to put our money in savings. I was thrilled to have the extra money for college. I'm sure your kids will be happy as well. Best of luck!
I would suggest that you talk to a financial adviser because they'll know what will suit your [low risk, higher interest] needs best. In the meantime you could try buying treasury bonds. You won't get much from them but at least it will be slightly more than the 1% interest your bank pays.
