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U.S. Sen. Charles Schumer has proposed legislation that would allow all newborns to receive $500 to open a savings account. The American Saving for Personal Investment, Retirement, and Education Act of 2009 would allow the government to open a savings account for each baby to help encourage people to save. Other details of the proposal include:

  • Savings accounts would be created automatically when children are issued Social Security cards.
  • Annual contributions up to $500 would receive a dollar-for-dollar match from the federal government.
  • Up to $2,000 could be deposited annually.
  • Money in the savings would grow tax-free.

Schumer’s savings proposal is meant to help families that are finding it difficult to save money. “It’s a dramatic and different way of encouraging people to save, long after the recession is over. The middle class needs help. And the other problem we have in America is we don’t save enough, in general,” he said.

Withdrawals from the savings would be tax-free after the child turned 18. Funds in the savings could only be used for college expenses until age 25. After that, the money could be used to a buy a home for the first time or for retirement savings.

Whether the legislation is passed or not you can still set up a savings for you or your child. Compare different savings accounts here.

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