Parents often struggle with how to encourage their children to save. For younger kids, money tends to feel intangible compared with the things they want, like toys or clothes.
There’s an old-fashioned remedy that many local banks still use: passbook savings accounts.
Passbook savings accounts are the ultimate low-tech savings accounts in which transactions are recorded in a small book called a passbook. While anyone can get a passbook account, small children especially appreciate the tangibility of the passbook, says Bryan Christensen, senior vice president and regional branch manager at Middlesex Savings Bank in Natick, Mass.
“It’s much easier for them to understand and appreciate the fact that there is money going in and out of this account when they’ve got a physical thing to hold onto.”
Christensen says he used passbook accounts with his own children “as soon as they were old enough to get money that was their own” to teach them the value of saving, before switching them to more traditional savings accounts in their teenage years.
Christopher Gust, assistant vice president at Alden State Bank, in Alden, N.Y., agrees. “We do find a lot of parents coming in and opening passbook accounts for their children,” noting that it was “a natural fit” for parents teaching children the basics of personal finance until they mature and “convert it over to a statement savings or a checking account.”
Passbook accounts have another selling point for younger bank customers. They often don't require minimum balances, come with low or no fees and offer interest for modest amounts. “We only require $1 to open the account,” Gust says, noting that Alden State Bank offers interest on accounts with more than $50.
Although “they’re not used as much as they were 20 years ago,” Christensen says the decline has mostly been with adults — the accounts are still relatively popular with young savers, even in the age of online banking.
“It is a very old-school product, but we do find that there is still a demand,” says Gust, pointing out that “passbook accounts make up about 40% of our savings accounts.”
In the wake of the financial crisis, many parents have sought to impart lessons about the wisdom of prudent saving. As Gust says, a passbook account is “an excellent way for young people to have their first banking product.”
Which banks offer them
Finding a bank that has passbook accounts is getting harder. Only 19% of the largest banks in top markets offer them, according to Greg McBride, chief financial analyst at Bankrate.com. That's "about half what it was in 2007." Your best bet: Check with the smaller local banks in your area.