This New Bill Could Pay Your Child Up to $46,000 When They Turn 18

This could make a huge difference to your child's future.

Parents of all backgrounds want their children to be financially secure when they grow up so they don't have to worry about where their next meal is coming from or how they'll afford to pay for much-needed medical care. However, some families have an easier time setting their kids up for success than others.

But help could be on the horizon for low-income families if Congress passes the recently proposed American Opportunity Accounts Act. It promises up to $46,000 for American children to use to better their lives. Here's what you need to know about it.

What is the American Opportunity Accounts Act?

This new piece of legislation was introduced by U.S. Senator Cory Booker (D-NJ) and U.S. Representative Ayanna Pressley (D-MA) as a way to help the next generation become homeowners, pay for higher education, and achieve other long-term goals. It also aims to help close the racial wealth gap.

If it's passed, the new law would create a seed savings account, also known as a "baby bond," with a $1,000 initial deposit for all American children. Each child's account would be eligible for additional annual deposits, up to $2,000, depending on their household income. The money in these accounts would sit in a federally insured account managed by the Treasury Department, and it would earn roughly 3% in interest each year.

Families wouldn't be able to touch the money in the account until the child turns 18, and even then, they'd only be able to use it for certain allowable expenses. This would include paying for higher education expenses or making a down payment on a home.

How much would baby bonds be worth?

The value of a baby bond would depend on its exact interest rate and what kinds of additional annual deposits the child qualified for. For families who are at or below the federal poverty line, each child would receive $2,000 per year, and their estimated final balance at 18 would be $46,215.

Annual deposits gradually decrease as income rises. Households with an annual income that's 500% of the poverty line -- about $125,571 for a family of four -- wouldn't receive any additional deposits after the initial $1,000. But they'd still have about $1,681 by the time they're 18 to put toward any approved purpose.

Nothing's set in stone

Baby bonds could be a huge boon for many Americans, but right now, this is all speculation. We have no way of knowing if Congress will pass it. Even if it does, that's not a guarantee that the final law would look like the current proposal.

For the time being, parents hoping to help their children save for the future will have to rely upon more traditional means. Opening a high-yield savings account on your child's behalf and depositing money as you're able to is a good start. Some of these accounts are earning more than 3% per year right now, though rates can fluctuate over time.

You could also save for your child in a certificate of deposit (CD) if you don't believe you'll need the money anytime soon. CDs sometimes offer higher interest rates than high-yield savings accounts, especially if they have longer terms. But you can face penalties if you withdraw the funds before the term is up.

For teens seeking assistance with higher education costs, you can help them apply for financial aid and scholarships. You can also help them in finding age-appropriate employment to build up their savings. Even if you aren't able to save consistently or put away a lot of money, every little bit counts.