Best Way to Save Money for Kids

We're not financial advisors. Nothing here is investment advice. We're parents sharing what we've learned. Do your own research and talk to a professional before making financial decisions for your family.

Every “best savings account for kids” article compares APY rates between banks. Ally vs. Capital One vs. Marcus. They'll tell you one pays 0.50% and another pays 4.25% and call that a meaningful difference.

They're missing the real question. Not which account, but what are you saving in? Because the vehicle you pick determines whether your kid's money grows, treads water, or quietly shrinks over 18 years.

The question nobody asks: save in what?

Einstein (allegedly) called compound interest the “eighth wonder of the world.”¹ Charlie Munger took it further: never interrupt compounding unnecessarily.² He refused to spend money that could be compounding, to the point that his kids took bus trips while their wealthy friends flew private.

Munger was right. Compounding is the most powerful force in finance. But it only works if your money is compounding faster than inflation is eroding it. If your savings earn 0.5% while the dollar loses 7% of its purchasing power, you're not saving. You're melting. (More on how compounding works in our compound interest guide.)

Savings accounts: safe but melting

The national average savings account pays 0.59% APY.³ Even the best high-yield savings accounts top out around 4-5%. Let's run the math on $10,000 in an average savings account over 18 years.

At 0.59% APY, your $10,000 grows to about $11,117 in 18 years. Sounds fine. But CPI inflation has averaged about 2.3% over the last 18 years, and the BLS calculator shows $100 in 2008 now buys what $152 buys today.⁴ That means you'd need roughly $15,200 just to break even on purchasing power. Your $11,117 buys less than your original $10,000 did.

FDIC insured? Yes. Purchasing power protected? No. Your money is safe from bank failure and shrinking from inflation at the same time.

Saylor puts it bluntly: his Miami Beach house cost $100,000 in 1930. Today it's worth roughly $40 million. That's the dollar losing 99.7% of its purchasing power over 90 years, working out to about 7% annual erosion.⁵ A savings account earning 0.5% against that kind of erosion is a guaranteed loss. (Here's a kid-friendly version of why money loses value.)

CDs and money market accounts: slightly better, still losing

Money market accounts average 0.58% APY.⁶ CDs do a bit better: a 1-year CD averages around 1.8%, and you can find promotional rates near 4-5% if you shop around.⁶ But you lock your money up for the term, and even the best CD rates barely keep pace with CPI inflation (3.3% as of March 2026).⁷

If the true erosion of purchasing power runs closer to 7% (as Saylor argues, tracking scarce desirable assets rather than the government's CPI basket⁵), then even a 5% CD is falling behind. CDs are fine for short-term parking. For 18 years of a kid's life? They're a slow leak.

529 plans: tax-free growth, locked to education

A 529 plan is a tax-advantaged account specifically for education expenses. Contributions grow tax-free, withdrawals are tax-free for qualified costs (tuition, room, board, books), and about 30 states offer a state tax deduction on top of that.⁸ Lifetime contribution limits range from $418,000 to $590,000 depending on the state.⁹

Most 529 plans invest in stock-based funds, so historical returns look like 6-8% annually for an age-based portfolio.¹⁰ That's competitive with the S&P 500 after fees. The tax benefit is real and immediate.

The catch: your money is locked into education spending. If your kid doesn't go to college, you can roll up to $35,000 to a Roth IRA or transfer to another family member, but there are penalties for non-education withdrawals.¹¹ We break down the full tradeoff in our Bitcoin vs. 529 plan comparison.

Index funds: historical returns, but not without risk

The S&P 500 has averaged 12.6% annually over the last 10 years and 10.4% over the last 20 years (with dividends reinvested).¹² That beats inflation by a wide margin. For most people with a long time horizon, a low-cost index fund is the default answer.

But stocks carry risks that people gloss over. Companies can be run by bad executives, get disrupted by technology, make dumb acquisitions, or dilute your shares. The S&P 500 dropped 57% from 2007 to 2009 and took over 5 years to recover.¹³ If your kid needed that money at the bottom, tough luck. (We cover these risks in detail in our stock market explainer.)

Saylor points out that the S&P going up 10% a year while the money supply expands 7% a year means stocks are really only earning you about 3% in real terms.⁵ You're running to stay in place.

Bitcoin: volatile, fixed supply, no counterparty risk

Bitcoin's annualized return since 2011 has been roughly 100%+, though that number is coming down as the asset matures.¹⁴ Over the last 10 years, it's averaged around 60-70% annually. Those numbers are absurd compared to anything else on this list.

The tradeoff is volatility. Bitcoin has dropped 70-80% multiple times.¹⁵ In 2022, it fell from $69,000 to under $16,000. If you needed your kid's money that year, you were down 77%. That's not a typo.

What it does have: a fixed supply of 21 million, no CEO who can dilute your stake, no board that can make a bad acquisition, and no counterparty risk if you hold your own keys. Saylor calls it the only asset that consistently exceeds the true cost of capital.⁵ Whether you agree depends on your time horizon and stomach for drawdowns. (Full setup guide in our Bitcoin savings plan for kids.)

The honest answer

It depends on when your kid needs the money.

Short-term (1-3 years): Cash is fine. A high-yield savings account or CD won't lose enough purchasing power to matter over a few years. The stability is worth the small erosion.

Medium-term (3-10 years): An index fund or 529 plan makes sense. You need returns that beat inflation, and stocks have historically done that over any rolling 10-year period.

Long-term (10-18 years): You need to outpace inflation by a real margin. This is where the savings account fails completely. Index funds work. Bitcoin has the highest historical returns but the widest range of outcomes. A mix of both gives you a floor and a ceiling.

Munger's grandfather “underspent his income all his life” so his widow would be taken care of.² The principle is right. The question our generation has to answer is: underspend and save in what?

Comparison table

Try this at home: the inflation calculator

Ages 10+, 15 minutes. Pull out your phone and look up three things: what a movie ticket cost the year your kid was born, what a candy bar cost, and what a gallon of gas cost. Write today's price next to each one.

Then ask your kid: “If you put $100 in a jar the year you were born, how much stuff could you buy with it today?” The BLS inflation calculator says $100 in 2008 only buys about $66 worth of stuff in today's terms.⁴ The jar didn't leak. The dollar got weaker.

Now ask: “What if we'd put that $100 into the S&P 500 instead?” At 10% annually, it would be roughly $555. Same $100, very different outcome. That's the whole point of this article in one exercise.

Materials: A phone (try the BLS CPI calculator at bls.gov/data/inflation_calculator.htm). Time: 15 minutes.

For more on how to talk to your kids about what inflation actually is, we've got a full explainer.

Sources

1. Attributed to Albert Einstein (disputed). Quote Investigator: Compound Interest
2. Kaufman, Peter D. Poor Charlie's Almanack: The Essential Wit and Wisdom of Charles T. Munger (2023 expanded edition). Quotes on compounding, thrift, and grandfather Judge Munger.
3. Bankrate, Average Savings Account Interest Rates (0.59% APY as of April 2026)
4. U.S. Bureau of Labor Statistics, CPI Inflation Calculator ($100 in 2008 = ~$152 in 2026 purchasing power)
5. Saylor, Michael. Interviews on The Breakdown, Lex Fridman, and Tom Bilyeu (2020-2023). Miami Beach house example, 7% monetary inflation, dollar half-life of 10 years.
6. SoFi / FDIC, National Rates and Rate Caps (money market and CD averages)
7. U.S. Bureau of Labor Statistics, CPI Report, March 2026 (3.3% year-over-year)
8. Saving for College, 529 Plan State Tax Deduction Comparison
9. Education Data Initiative, 529 Contribution Limits by State
10. Vanguard, S&P 500 Index Fund (VFIAX) Performance
11. Congress.gov, SECURE 2.0 Act of 2022 (Section 126: 529-to-Roth rollover provision)
12. Trade That Swing, Average Historical Stock Market Returns for S&P 500 (10yr: 12.6%, 20yr: 10.4%)
13. Investopedia, S&P 500 2007-2009 Drawdown Data
14. UpMyInterest, Bitcoin Historical Returns Data
15. CoinDesk, “Bitcoin Price Hits Two-Year Low” (Nov 2022)