BEST BROKERAGE ACCOUNT FOR KIDS
- KidVestors
- Apr 28
- 8 min read
Updated: 6 days ago
What you'll learn:
It’s never too early to start teaching kids about money, and setting them up with an investment account is like giving them a head start on a lifelong financial adventure. With the magic of time, compound interest, and a bit of financial literacy, your child’s first “job” could be watching their money grow. Let's walk through how to open a brokerage account for your kid, why it’s a great idea, and how to teach them about the journey they're beginning.
Why Bother with a Brokerage Account for Kids?
Opening an investment account for your kids might sound a little ahead of the game. But here’s why it’s a smart move. Investing early means that time (and the power of compound interest) is on their side. With decades to grow, even small investments can turn into something big. Think of it like planting a tree: you start with a small seed (those initial investments), and over time, it grows into a big, strong tree. Compound interest is like the rain and sunshine that make it grow faster and stronger every year. If you start early, even small amounts have the potential to blossom into significant financial assets, giving your child a serious head start.
Let's talk Compound Interest
When we talk about compound interest, we’re talking about money that grows on top of itself. Imagine it like this: you start with $100 invested for your child. Over the course of a year, it grows to $110. But here’s the cool part—now you’re earning interest on that $110, not just the original $100! Over time, this snowball effect means their money isn’t just sitting there but actively working for them.
Let’s say you put aside $500 a year for your child starting when they’re five. With a reasonable average annual return, by the time they’re 18, they could have a few thousand dollars! Imagine the head start they’d have if they kept it up. This is the power of time and compound interest working together—a little today becomes a lot tomorrow.
What Is A Custodial Brokerage Account?
A custodial brokerage account is an investment account you, the parent, manage on behalf of your child until they’re legally an adult (usually 18 or 21, depending on the state). You’re in control until they’re old enough, but the account is technically in your child’s name. Think of a custodial brokerage account like a “training wheels” version of an adult brokerage account.
Think of it like being the pilot of a plane while your kid is the co-pilot. You handle the takeoffs, landings, and navigation while they get to observe and learn until they’re ready to fly solo. You can invest money in this account, buy stocks, bonds, or mutual funds, and watch those investments grow over time.
Where to Open a Custodial Brokerage Account ?
Thankfully, you don’t need to be a financial guru to get started. Many big financial institutions offer free custodial accounts that make investing accessible for beginners. Here are a few of the best to check out:
Fidelity: Known for its no-fee, beginner-friendly platform and great customer service.
Charles Schwab: Offers custodial accounts and excellent educational resources to help you and your kids learn together.
E*TRADE: Provides an easy-to-navigate platform with a variety of investment options.
Ally Invest : Provides custodial investment accounts for minors
All of these websites allow you to set up a custodial account relatively quickly, so you can get started right away!
Red Flags to Watch Out for When Picking a Brokerage Account for Your Kids
Choosing a brokerage account for your kids is exciting, but it’s easy to get caught up in the hype of flashy new apps without realizing the hidden fees lurking underneath. Let’s talk about a few red flags you definitely want to watch out for before hitting “open account.”
First up: monthly fees. Some newer brokerages and fintech platforms charge a monthly subscription just to invest on their app. Not only can this eat away at your kids' investment gains over time, but here’s the kicker — if you stop paying, they might actually sell your investments to cover the bill. Yikes. The good news? You can invest for free with trusted names like Charles Schwab, Fidelity, E-Trade, Ally, or Vanguard.
Next, watch for transfer-out fees. If you ever want to move your child’s investments elsewhere, some newer platforms will charge you $50 to $100+ just to leave. (The established brokerages we just mentioned? They usually transfer your account for free.)
Another biggie: no clear customer support. If you run into an issue and there’s no real person you can reach easily, that’s a problem, especially when it comes to your money.
Also keep an eye out for commission fees (extra charges just to buy or sell stocks), annual fees, and inactivity fees (penalties if you don’t make trades for a while). These can all quietly chip away at your kid’s hard-earned portfolio.
Lastly, make sure there’s a simple cancellation process. Thanks to newer regulations, canceling should be a one-click process — no jumping through hoops just to leave.
Bottom line: stick with well-established brokerages (like those mentioned above) that offer no-fee investing, clear support, and full transparency. Your kid’s future deserves it.
Custodial Brokerage Account vs. Custodial Roth IRA: What’s the Difference?
Now, you might’ve also heard about custodial Roth IRAs for kids and wondered if they’re better. Here’s the difference:
Custodial Brokerage Account: This is a general investment account that comes in two types: UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). Both allow you to invest on behalf of your child, and once they reach adulthood (18 or 21, depending on the state), the money legally becomes theirs. Unlike a Roth IRA, there are no restrictions on withdrawals, making it a flexible option for saving toward college, a first car, or any other expenses. Just keep in mind that selling investments may trigger capital gains taxes.
Custodial Roth IRA: This account is for retirement savings. While it has the same “parent in control, kid is the owner” setup, Roth IRAs come with rules: contributions are after-tax, which means any withdrawals in retirement (after age 59½) are tax-free. Also, kids can only contribute earned income (like money from a part-time job). The benefit? It offers long-term, tax-free growth, but it’s less flexible since early withdrawals can be penalized unless used for qualifying reasons (like education or their first home).
In other words, the brokerage account is the “all-purpose” investment option, while the Roth IRA is more specialized for retirement. Both are great, depending on your child’s specific goals (and, honestly, yours too).
Kiddie Tax and Tax Implications
Ah, taxes. They’re not the most exciting part of opening a custodial account, but they’re important to know. When you open a custodial brokerage account, the money in that account legally belongs to your child, but that doesn’t mean Uncle Sam ignores it.
The “kiddie tax” is a special tax rule that applies to children under 18 (or under 24 if they’re full-time students). Here’s how it works:
As of 2025:
First $1,350 of Unearned Income: This portion is tax-free, which is great because small investments may stay within this limit.
Next $1,350 of Unearned Income: Taxed at the child’s rate (usually lower than yours).
Above $2,700 of Unearned Income: Taxed at the parents’ rate.
If your child’s investments earn more than $2,700 a year, that income will be taxed as if it were yours. So, while there are no annual contribution limits like a retirement account, the kiddie tax is something to consider when deciding how much to invest.
As always, before making any investment decisions always consult a financial advisor to determine the best plan of action for your specific situation.
Teaching Kids Financial Literacy: An Investment in Their Future
If your goal is to teach your kids how to invest without the pressure of real money on the line, you’re in the right place. At KidVestors, we offer a stock trading simulation that mimics a real brokerage experience — but without the risk. Students get to practice buying and selling stocks using live stock market data, so they can see how their decisions would play out in the real world. It’s the perfect way for kids to build confidence, make mistakes (safely), and learn critical investing skills without worrying about losing actual dollars. Plus, it’s not just a solo mission — students can compete against other young investors from around the globe, making it even more fun and motivating. Whether they’re just getting started or sharpening their skills, KidVestors gives them a smart head start toward becoming future investors.
We all know that handing our kids a $100 bill without any guidance isn’t going to make them a millionaire. But what's equally important alongside opening a brokerage account is teaching them the skills to manage that money. Financial literacy is about understanding how to budget, save, invest, and even spend wisely. It’s the foundation for making informed decisions, both today and in the future.
A custodial brokerage account is a fantastic tool for teaching financial literacy. When kids see their money grow (or shrink) based on market movements, they’re more likely to understand the value of patience, the risks and rewards of investing, and how to make informed decisions with their finances. It’s one thing to tell your kids that they should save and invest; it’s another for them to experience it.
Turning Kids into KidVestors
Now, maybe you’re wondering, “How do I get my kid to actually enjoy learning about money?” That’s where we at KidVestors come in. We're here to make financial literacy fun, engaging, and accessible. Our platform is built to teach kids everything they need to know about money, from saving and investing to budgeting and entrepreneurship.
Here’s how we can help:
Hands-On Learning: Through games, avatars, and interactive videos, KidVestors teaches kids how to invest in a way that feels more like playing than studying.
Real Rewards: Kids can earn KV Bucks™, our virtual currency, as they complete lessons and quizzes. And get this... it converts into real cash! It’s a fun way for them to see the value of saving and earning—literally!
Customized for Every Age: Our platform is tailored for students from 3rd to 12th grade, so whether you have a young one just starting to learn about money or a teenager ready to dive into investing, KidVestors has resources at every level.
Automated Tracking and Reports: Parents can see their child’s progress in real-time, and educators can access insights on student engagement and financial literacy skills.
Investing isn’t just about growing money—it’s about giving kids a skill they’ll use throughout their lives. And in short, financial literacy doesn’t have to be scary or complicated. With a little guidance from you—and some help from KidVestors—your kids can build a lifetime of financial knowledge and success. After all, there’s no greater gift than teaching them how to make their money work for them. Let’s start today, because tomorrow’s greatest investor could be sitting right at your kitchen table!
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