Baby's first savings account

We just had a son and want to open some type of bank account. Any suggestions? He is too young for ING or HSBC account, can we do some other type of high interest, risk free account? Money market?

Congratulations on the birth of your new son! I think it is a great idea to start a savings plan for him. It was not clear if your intent for this savings account is to use it for future educational expenses or as a general way to save money for him. If you are looking to start a college savings plan, there are many options available to you. Some of the more common ones include 529 college savings plans, prepaid college tuition plans, Coverdell education savings accounts and custodial trust accounts. Many college savings plans will offer tax advantages that you will not receive from most general savings accounts, money market accounts or CDs (certificates of deposit).

Savings accounts that usually offer higher yields and are less risky generally include online savings accounts, money market funds and CD’s. That said, there are other options available such as bond mutual funds and government savings bonds, but these can be more risky or offer lower yields. Whichever option you choose, your time horizon and intended use for the savings should be factored into your evaluation of these products.

The online savings accounts such as the two you identified above are very good options because they generally offer higher rates, no minimum balance or a low minimum balance, and no fees to undermine your savings. These types of accounts often link directly to your checking or savings account at your local bank so you can access your money by making transfers to and from each account. One thing to keep in mind is that these transfers can take a few days to complete. These accounts are also often FDIC insured so your money will be protected. Although your son may be too young to have an account opened up in his name alone, I believe the account can be set up as a joint account or as a custodial account with an adult. Check with each institution to make sure.

If you are uncomfortable with the online savings banks, I have found that local credit unions can offer competitive rates. You may need to pay a membership or joining fee to become a member in order to have access to their offerings but these fees are often nominal. In addition to FDIC insurance, most if not all, credit unions in Massachusetts offer additional insurance under the state system.