When Should Your Teen Open A Checking Account?

If your teen is itching for more independence, you may wonder whether a checking account is a good way to teach budgeting and money-management skills while taking a task off your already-full plate. However, while some teens are more than ready to take their finances into their own hands, for others, a checking account could lead to overdraft fees or other unanticipated costs. Read on to learn more about some of the laws and regulations governing teens with checking accounts, as well as the factors you'll want to consider when deciding whether now is the best time for your teen to open a checking account

When can a teen open a checking account?

Banks and credit unions are highly reluctant to enter contracts with individuals who are under age 18, as their minor status significantly limits the bank's ability to sue or collect on debts. However, with an adult as a co-signer or account co-owner, most banks make teenage checking accounts available to individuals as young as 12 to 14. 

What should you consider when deciding whether your teen is ready for a checking account? 

Even if your teen qualifies for a checking account at your local bank or credit union, there are some factors you'll want to consider to ensure you (and your teen) don't wind up on the hook for expensive fees and charges. 

If the checking account doesn't have overdraft protection (through either a separate line of credit in your name, or an associated credit card or outside bank account that can be tapped for over-the-limit transactions), your teen could rack up overdraft fees each time he or she uses a debit card to purchase a soda. Setting up overdraft protection can be a breeze for most accounts, but if the only ones available to your teen don't offer this service, you'll want to ensure your teen is responsible enough (and committed to balancing a checkbook) to avoid spending more money than is available. 

And because many vendors will place a temporary "hold" on funds when a debit card is used for a transaction, overdrafts could be generated even when there is sufficient money in the account. For example, if your teen has $50 in his or her account and purchases $25 worth of gas at a gas station that places an automatic $75 hold on debit transactions, this could generate a $50 overdraft (and accompanying fee). Educating your teen on these potential consequences should help avoid unpleasant surprises.