Key Takeaways
- Prudential is offering parents and guardians $150 if they’re a U.S. resident and had a baby born on Jan. 1, 2025.
- With the right investment strategy, that money could grow to $100,000 by the time your baby reaches retirement age.
- Opening a high-yield savings account, CD, or brokerage account now will allow you to save and invest for your child’s future, helping them to build wealth.
It is said that the best time to plant a tree was 20 years ago, and the second best time is now. A similar philosophy applies to saving and investing. It’s not just about how much you put away but how long your money has to grow. For babies born this year, now is the best time for parents to save and invest for their future.
If you’re a U.S. resident and had a baby on Jan. 1, 2025 (precisely on New Year’s Day between 12 a.m. and 11:59 p.m.), you’re eligible to receive $150 from Prudential as part of a promotion from the financial services company. With the power of compounding returns, investing just that $150 could be worth $100,000 by the time the baby grows up and eventually retires, according to Prudential.
Even if you don’t meet the exact requirements to claim this bonus, the same lesson applies: While you can’t go back in time to plant a financial tree for yourself, new parents can set aside a little money now to give their future adult children a huge advantage.
How to Claim $150 From Prudential
If you had one of the approximately 10,000 babies born in the US on New Year’s Day—the first babies in Generation Beta—Prudential will write you a check for $150. You have until April 30 to create an account on Prudential’s Beta Babies Bonus website, watch a short Prudential video about financial planning for the next generation, and fill out an application with some verifying information such as a certified copy of the child’s birth certificate and proof of address.
After getting approved, you (the parent or legal guardian) will get a check in the mail within 75 days. You don’t have to open an account with Prudential, and technically, the money is yours to use however you want, though keep in mind you may owe taxes. Regardless, one of the best ways to use this $150—and/or some other savings—is to put it into an account for the newborn child.
Set Up an Investment Account for Your Child
To turn $150 into $100,000 by the time your child retires—or to turn other modest amounts that you save on your own into a future windfall—you have a few options.
One is to create a custodial account for your child. These accounts generally fall under either the Uniform Transfers to Minors Act (UTMA) or the Uniform Gift to Minors Act (UGMA), which are very similar in that they allow you to open and control a financial account on behalf of the child, where you can save money and invest. When the child reaches an age between 18 and 25, depending on the state, they’ll gain control over that money.
Many banks and brokers offer custodial accounts, which can give you different options for how to invest within those accounts.
Some financial institutions also offer other account structures geared toward children, such as joint bank accounts where the parent and child have an account together, and the parent manages it until the child reaches adulthood.
You could also start a separate account in your own name and eventually transfer the money to your child. But sometimes—for tax and logistical reasons—it makes sense to create one in your child’s name.
Building Wealth for Your Child
Based on the account you set up and the offerings of the financial institution, some options to set your child up for future financial success include savings accounts, CD accounts, and brokerage accounts.
High-Yield Savings Accounts
A high-yield savings account is a great place to start saving for your children’s future if you want a very low-risk, flexible option. Today’s best high-yield savings accounts pay up to 5.00% APY. So, if you put $150 in that account, it would grow to $157.67 after one year (with monthly compounding). In 25 years, it would grow to $522.19, and in 50 years, it would be $1,817.91. That’s all without contributing any additional money to the account.
The downside is that these accounts typically pay less than other investment accounts. A 5.00% annual percentage yield (APY) may sound great, but keep in mind that inflation cuts into those returns. Additionally, the APY on savings accounts are variable and can drop over time (or increase over time), so you might not get 5.00% APY in the future. Still, the principal amount you put in has essentially no risk of losses.
Certificates of Deposit (CDs)
You can open one of the best CDs for your child as another low-risk option. CDs typically pay slightly more than a high-yield savings account but have less flexibility. With a CD, to earn the full APY, you can’t withdraw the money before the end of the CD term. So, depending on which CD you choose, the money might be locked up for several years.
That said, this typical drawback of CDs might not be a bad thing if you’re saving for your child’s future. You might not want to give them the money for a long time, so locking it up in a CD makes it less tempting to raid. Right now, CDs pay over 4.00%, and if the federal funds rate drops in the future, other interest rates may fall too, but you’ll have locked in a 4.00% rate for the CD term, which could benefit you in the long run. For example, add another $850 to your $150 from Prudential and lock in a 5-year CD with a rate of 4.40% APY to earn $1,240.23 once the CD matures.
Brokerage Accounts
If you start a UTMA or similar brokerage account for your child, you might decide to invest in stocks or other securities that can have more risk of losses but much higher potential for long-term gains. In Prudential’s example of turning $150 into $100,000 by the child’s retirement, for example, that assumes a 9.75% annual return, which typically is only possible through investing in assets like stocks, not just using a savings account.
While there’s more risk of losing money when investing in stocks, the long-term trend is up. Since your child has many years until they need the money, you can likely withstand any temporary dips in the market, and if history repeats itself, then eventually, the money will grow substantially.
The Bottom Line
While the many ways to start an account and invest for the future can feel overwhelming, it’s important to just get started. Don’t worry about trying to make the perfect decision. You don’t have to be locked into one account permanently. For example, you might put a few hundred dollars into a joint savings account now, and in a few months, you might open a UTMA and invest in stocks for your child. But the sooner you start with any route, the more time you have for the money to grow.