I've figured out a strategy to make my newborn's savings account worth 6 figures by the time she's 18

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A few weeks after I became a mom, I had a brand new financial goal. I wanted to build up my baby's net worth so that by the time she hit 18, she'd have six figures to her name.

Since I don't come from generational wealth and it's taken me years to build up my own savings account, I wanted to take some of the biggest money lessons I learned and put them into action for my baby. Instead of setting up a registry for her or asking for baby items once she was born, I told friends and family that the best gift was cash.

I then took that money and put it into a high-yield savings account for her. Here's the strategy I'm using to turn that cash into six figures by the time she's 18.

Start with high-yield savings

One of the biggest financial mistakes I made in my 20s was keeping all of my money in a regular, low-interest savings account. I didn't know any better and lost out on thousands of dollars by doing that.

I decided to open up a high-yield savings account for my baby at a bank that's currently offering an APY of 4.25%. While the interest on savings accounts are variable and can become higher or lower over the years (some banks are offering over 5% APY right now, but that certainly wasn't the case last year), keeping cash in a high-yield savings account benefits from compounding interest.

Compounding interest helps money grow because interest is paid on the principal balance and on any new interest accrued.

When I used a compound interest calculator, I was able to see how the money could grow over 18 years, especially if I continue to contribute to it monthly as planned.

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Move money into higher-yielding CDs

Since the interest offered on a high-yield savings account varies,I will move a chunk of the money inside of that account in high-yielding CDs when the opportunity presents itself.

For example, right now there are banks offering CD rates approaching 7% APY. If I put some of the money, or all of the money, into a 1-year CD, I'll have guaranteed and predictable earnings. I plan to do this during the times when CDs are offering a significantly higher interest rate than savings accounts , especially since there's no risk in keeping the money in a CD.

Putting earnings in a taxable brokerage account

While I want the money to grow inside of the savings account as risk-free as possible, I do plan to occasionally put some of the money into a taxable brokerage account.

These types of accounts allow people to use after-tax dollars to buy stocks, bonds, mutual funds, and ETFs. While these investments do come with more risk than keeping the money in a CD or savings account, the money could grow faster and with better returns.

As the money in the savings account grows, I'll invest some of it into mutual funds, bonds, and ETFs for a long-term period (around 10-years) and hope to benefit from average stock market returns.

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