Why Now May Be a Better Time Than Ever for Parents to Open a High-Yield Savings Account

If you don't have an urgent need for the Child Tax Credit money coming your way, consider saving those funds.

Kids can be expensive, and parents often struggle to save money because they're spending so much to take care of their offspring. But, for many parents, now may be an ideal time to open a high-yield savings account and get ready to start socking away cash. Here's why.

Payments are coming for millions of parents

Parents should consider opening a high-yield savings account now because they may soon be getting some extra money from the government.

See, the American Rescue Plan Act provided for an expanded Child Tax Credit in 2021. For eligible families, the credit is worth $3,600 per year for each child under the age of 6, and it's worth $3,000 per year per child for kids ages 6 to 17. For parents of 18-year-olds and full-time dependent students 24 or under, $500 will be available.

So far, the credit expansion applies only in 2021, although some lawmakers are trying to make it permanent. It's a fully refundable credit, so parents can receive the money even if they don't pay that much in taxes. And the IRS will deliver the money over time by depositing either $250 or $300 per month into American's bank accounts (depending whether the parents are eligible for $3,000 or $3,600). The monthly deposits will start on July 15 and continue through December.

Parents can do lots of things with that money, including use it to recover from the pandemic, pay for children's activities, or share it with their kids to help them learn to invest. But for many people, one of the best options will be to keep the cash in a high-yield savings account.

Why parents should consider putting their Child Tax Credit into savings

The Child Tax Credit expansion is intended to help families who are struggling with the costs associated with raising kids -- especially during the pandemic. And for many of those parents, the future is still uncertain. Schools may not fully reopen in the fall, for example, if there are new coronavirus variants to worry about.

If parents think they may need the expanded Child Tax Credit funds within the next two to five years, they shouldn't invest the money in the stock market. There's too great a risk of loss with a short investing timeline -- especially in light of how volatile the market has been recently.

But leaving it to sit in a standard checking account means that it will likely be absorbed into the regular household budget -- and probably spent. Now, if you need that money to cover necessities for your kids right now, that's probably the best option for you. But, if you aren't counting on this cash in the short term, you have a golden opportunity to set it aside in savings to improve your child's future financial situation.

Putting that money into a high-yield account will separate it from the rest of your funds so you're less likely to spend it. It will also keep it accessible in case you need it -- and it will allow you to earn a reasonable rate of return with no risk. Unless you absolutely need the money to cover immediate expenses, consider opening a high-yield savings account soon so you'll be ready to move your Child Tax Credit funds over when the first deposit comes this July.