According to a recent study by CreditOne Bank, more than half of Gen Z are entering adulthood without any formal financial education and it’s fueling generational financial trauma. Teaching kids to deposit part of every paycheck, however small, in a savings account can help build good financial habits early in life.

But just because a savings account advertises itself as designed for students doesn’t mean it’s the best choice for your budding scholar.

“If you’re looking for something simple and flexible to stash away cash for textbooks or a trip, a student savings account might be a good fit,” recommends Steven Kibbel, CFP. “On the other hand, if you’re focused on growing your money for something down the road, like after graduation, a HYSA could be the better choice.”

Let’s take a look at which is the best bet for your kids: A student savings account or a high-yield savings account.

How to choose a student savings account

Choosing the right student savings account depends on your priorities. As you consider the countless options available online and from local banks, here are the features you should look for:

• High APYs: Your best bet is to choose a savings account with the best annual percentage yield possible, no matter whether the name of the account includes the word “student” or not. High APYs means bigger returns on your balance, and that’s the best possible way to teach students about the power of compound interest.
• No fees: Students already pay enough for textbooks and snacks—savings account fees should not be on the menu. Always go with the account that lacks monthly maintenance fees, overdraft fees, or ATM fees.
• No minimum balance requirement: Students should focus on their studies, not on worrying about maintaining a minimum balance in their savings account.
• Plenty of free ATM access: If a student is studying away from home, they’ll want to ensure there are plenty of free ATMs nearby.
• Educational resources or budgeting tools: Institutions that offer financial education modules or budgeting tools can help students better understand how to use their money. 

Do you need an account specially designed for students?

Savings accounts designed specifically for students typically have no or low monthly fees and fewer deposit requirements than traditional bank accounts. To teach students about financial responsibility, many student savings accounts also don’t have overdraft fees.

A high-yield savings account can be a great tool for a financially responsible student. These earn you much higher APYs than traditional accounts. And if you choose a HYSA that isn’t specifically tailored to students, you won’t have to worry about it converting to a traditional account when you graduate.

“Many HYSAs are offered by online banks, which often means easy access through apps,” says Kibbel. “However, it might mean you miss out on access to physical branches.”

What to consider when opening a savings account for students

Opening a new bank account for a student who is under age 18 may require a cosigner like a parent or guardian, so take this into consideration when choosing your student’s savings account. Furthermore, there may be age restrictions on opening an online account, which could limit your choice of account to institutions with bricks-and-mortar bank branches.

When you apply for the Free Application for Federal Student Aid (FAFSA), it will ask you to report all of your financial assets—including your savings accounts. Savings accounts count toward your net worth, so having a high balance may reduce a student’s eligibility for financial aid.

How much should a student have in savings?

There is no hard and fast rule for how much a student should have in savings, as it depends on how much they’re earning—if anything. For adults, the recommendation is to have three to six months of income in a savings account. But this could be hard for a student without a job.

Ideally, students should have enough money in their accounts to cover unexpected expenses on campus. Saving $1,000 is a good goal to work toward, but even having a few hundred saved could be crucial if you find out you need a new textbook at the last minute.

What happens to your savings account when you’re no longer a student?

It depends on the financial institution where you hold your account, but most banks or credit unions will automatically convert your student account into a traditional savings account once you graduate. This means you might lose the perks of no monthly or overdraft fees, so it’s important to review the terms of your new account to avoid surprise charges. And if you chose a conventional high-yield savings account, there’s no need to worry.

The takeaway

Regardless of what type of account you choose, the key is to start building healthy financial practices now that will continue to support you after school. 

“At the end of the day, it’s less about finding the ‘perfect’ account and more about what fits your current needs,” says Kibbel. “Start small and stay consistent. Whether it’s a student account or a HYSA, what really matters is building the habit of saving.”