By Dr. Jim Dahle, WCI FounderFidelity has started offering a “youth account,” and some WCIers are wondering if it is a good idea for their teenager. The TL/DR answer is “probably not,” but it's fine to put a little bit of money in there.
Still, let's talk a little more about a Fidelity Youth Account and what you should consider if you're thinking about opening one.
What Is the Fidelity Youth Account?
The Fidelity Youth Account is a fully taxable brokerage account owned by a 13- to 17-year-old. The account can be opened with as little as $1, and there are no fees to open it. Parents must open the account, can add money to (but not withdraw money from) the account, and must have an existing account with Fidelity themselves. The teen then controls the account, but parents (well, one parent) get visibility into what they are doing.
The teen can essentially invest in most of what a brokerage account is typically invested in, including the government money market fund (yielding 3.78% on the day this was published). The account can have a debit card associated with it. It then gets converted to a regular brokerage account at age 18. There is a $30,000 annual limit on contributions. It seems most contributions are transfers from the parents' Fidelity account, but checks can be deposited into the account by the teen and direct deposits from their job can also go there. The teen cannot gift money from the account, and daily debit card transaction amounts are limited.
What Are the Investing Limitations?
Per Fidelity, the account can be invested in the following:
- Fidelity mutual funds
- Most US stocks
- Some Exchange-Traded Funds (ETFs)
- REITs
- Some international equities
However, teens cannot invest in the following:
- Third-party mutual funds
- Corporate bonds
- Municipal fixed income securities
- Certificates of Deposit (CDs)
- Treasuries
- Convertibles
- Leveraged and inverse ETFs
- Cryptocurrencies
- FILI insurance products
- Penny stocks (stocks valued at $5 per share or less)
- Foreign currencies
Additionally, teens cannot engage in options, margin trading, or short selling, and they can't participate in a company's IPO. Note that most ETFs are allowed, but leveraged and inverse ETFs and Bitcoin ETFs are specifically excluded. These can be bought in a UTMA.
More information here:
Why a 13-Year-Old Has More Investing Accounts Than You
What We Learned Financially from Our Parents and How We’re Passing It on to the Next Generation
How Is This Different from a UTMA?
The first question most informed investors ask when they hear about this account is, “How is this different from a Uniform Gift to Minors (UGMA) or Uniform Transfer to Minors (UTMA) account?” The main difference between the teen account and a UTMA account is ownership and control. A UTMA is a custodial account. The money in it belongs to the minor, and it can only be spent in a way that benefits the minor. But the minor has no control over it until reaching a certain age (21 in most states). With the Fidelity account, the parent has limited control over it, and they, in fact, CANNOT transact in the account or withdraw money from it. It's the teen's account now instead of later. The parent CAN close the account completely and cancel the debit card, though. In addition, as noted above, investment options are more limited in the Youth Account.
How Are These Accounts Taxed?
These accounts are taxed exactly like a UTMA. That is to say, the “Kiddie Tax” and gift tax limits still apply. When it comes to unearned income, a minor pays no tax at all on the first $1,350 [2025 — visit our annual numbers page to get the most up-to-date figures.] in income and then pays tax at their own tax rate (probably 0% if qualified dividends, but typically no more than 10% on ordinary income) on the next $1,350. After $2,700 [2025] in income, additional income is taxed at the adult's tax rate. So, if this account is big enough or the youth has other unearned income, their transactions could theoretically increase your tax bill.
What Is the Deal with the App?
The account comes with the Fidelity Youth App, which the teen can put on their phone. They use the app to do all their transactions. Teens can use the app to request money from their parents, too (which has to be transferred in from the parents' Fidelity account). The parent can also use the app to make regular “allowance” transfers to the teen.
More information here:
Is Greenlight the Best Debit Card to Help Your Kids Learn Finance?
Venmo Teen Account and How to Use It
What Are the Pros of Using a Fidelity Youth Account?
There are some benefits of using a Fidelity Youth Account. The first is that it is probably a more effective teaching instrument than a UTMA. The kid is going to learn better how to invest if they can and have to do everything themselves. They will feel more trusted and more in control of their own money. It will probably also allow them to earn more on their savings than they would at a local bank or credit union.
What Are the Cons of Using a Fidelity Youth Account?
The main downside is that the frontal cortex is not fully developed until age 25. Young people do stupid things, especially teenagers. How much money do you really want a 14-year-old to control—especially when their actions can start affecting not only their tax bill, but yours? Plus, it's just one more financial account to manage. Teens tend to ignore things that are not important to them, and plenty of them may learn very painful lessons at a young age that will affect future financial and investing behavior. The last thing you want to do is put a fear of investing into your teen that lasts throughout their life. Who needs any more pressure as a teenager?
Why Does Fidelity Offer This?
Well, Fidelity wants to help your teen become savvy about investing. And of course, it wants to manage more money and generate fees from it, and it especially knows that inertia is real and that someone who starts investing at Fidelity is likely to remain there for their entire life.
Will You Be Using a Fidelity Teen Account?
No, we do not plan to open Fidelity Teen Accounts for our kids. They already have plenty of accounts. Their “20s fund” consists of the following:
- UTMA Account (the real 20s fund)
- 529 account (college)
- Roth IRA account (retirement, funded with a “parent match” of their earned income)
- Health Savings Account (healthcare, funded age 19-26)
- Local credit union accounts
We think that's enough to teach them about money.
More information here:
How to Open a Roth IRA for Your Kids (and Should You)?
Teaching Your Kids About Investing with The Stock Game
Is It Nuts to Use a Fidelity Youth Account?
No. If this sounds like a great way to teach your kid about money, feel free to open an account. You can put a little money in there yourself and let them put their own gift and earned money into it. The allowance feature can be particularly useful. The account can be a particularly good thing if they are already interested in money and investing.
What I would NOT do, however, is put $50,000 or $100,000 in there like I might with a UTMA. If you want to put a couple thousand dollars in there and let it grow to a four-figure or even low five-figure amount, that's fine. But for larger sums of money that you want them to have access to in their 20s, I would still use a UTMA. A Roth IRA is still a much better long-term account for their earned money being saved for retirement. And a 529 is much better for college savings (and you can remain the owner of that account even after age 21). For money that will be used by them that you wish to control long-term, you would still want some sort of trust.
What do you think? Does your teen have a Fidelity Youth Account? What do you like/dislike about it? Would you consider opening one of these instead of or in addition to a UTMA account? Why or why not?
This definitely seems like a way to gain early market share with Gen Z and Alpha. It feels similar to when my dad gave me my first set of DeWalt tools, so now I mostly stick with them because they are familiar (and the batteries fit the different tools). I imagine other companies will offer similar products to attract that growing population, but it seems like a UTMA is still the better investing option. I can always have my kids sitting beside me as we look at their investments in the UTMA. If I want a spending account for them, I could open a checking account for them so they aren’t unbanked when they leave the house as adults.
I opened one for my 13yo 3 years ago. He needed a transaction account as he sometimes wanted to make more than six withdrawals from his savings account per month but the bank wouldn’t let him, but no bank in the area at the time was giving out checking accounts before age 16. (Chase is now here and does that, but they weren’t then.) He’s very satisfied with the account, the debit card works as intended, he deposits his paycheck via ACH right into the account, and he buys a little Fidelity S&P 500 alongside some individual stocks he likes. (Fidelity won’t let him buy Bitcoin etc.) He can use Venmo and PayPal. And I think it’s actually impossible for him to incur a fee other than an ATM withdrawal, but kids these days do not use cash, they just Venmo each other even single dollars at a time.
The biggest downside I can see is no checkwriting — there is nowhere to order a checkbook — but apparently when he turns 18 the account automatically converts to a regular brokerage account and he can add checkwriting then. So far we’ve not run into a situation where he’d need to have written a check.
Quite satisfied. It does what it says it does, and it was a product we needed that other providers weren’t offering at the time, and as expected, it’s sticky — even though a traditional bank checking account is now available to him he sees no reason to bother, and I don’t either.
My kids have had them for a few years. They get direct deposit from working for us. They are not allowed to have their debit cards.(none of us use debit cards anyways.). They each have a credit card.
They each have a Roth at Fidelity. We have only had positive experiences. They have grown up learning about money,investing, real estate. I don’t see a downside but I always appreciate your articles.
The Fidelity Youth account is great. It is much easier to use than a local bank, and the child can earn real interest on cash. The app is easier much better than the local bank’s app, and it’s an easy way for the child to make deposits. When my daughter had cash to deposit, she gave it to me (saving me a trip to the bank for my own cash needs) and I just moved money from my Fidelity account to her youth account. We still do this now that she is 18.
It was also an easy way for us to get money to our daughter when she spent her sophomore year of high school abroad. If I remember correctly, the Fidelity Youth Account debit card refunds all foreign ATM transaction fees. We got alerts of all transactions.
Now that she is 18, she is in charge. If she wants to invest any of her money for the long term, she can purchase a 0 fee Total US Index Fund or International fund offered by Fidelity. Does any one under 25 really need more investment options than that? Teach the child the importance of low fees and staying the course at an early age and they will likely end up with a lot more money decades later. The Fidelity Youth account is basically a convenient cash account and training wheels to get a youth on their way to financial responsibility. I was so pleased I opened one for my younger daughter as soon as she was old enough. She now gives me her birthday and babysitting money and I move the same amount into her youth account. She’s earning decent interest and can see it on the App. So far, so good.