You're 18 years old, and you want to buy a car or truck. You have no credit history and no one to co-sign a loan application.
There's no cause for concern - if your parents had the foresight to open a prepaid savings account to help you purchase the vehicle.
That's the sales pitch of a Florida bank and a marketing firm.
Many banks and state governments enable parents to contribute to prepaid savings accounts for college tuition. Interest on the accounts is tax-deferred. Beach Bank and TMR Multimedia, both of Miami, say their program is the first to apply the concept to vehicle purchases.
The companies declined to say how many parents have opened auto accounts since the program began in April.
Beneficiaries also can apply the proceeds to other purposes, such as education.
"The accounts are extremely flexible and can be idled or closed at any time without any penalties," Beach Bank President Hans Mueller says. "Customers can also change their monthly deposit amount or stop making payments at any time."
The bank pledges to approve auto loans to young people with the savings accounts to help them finance vehicle purchases. Those loans do not require a co-signer.
Beach Bank limits the program to Florida residents. But TMR spokeswoman Margaret Kessler says the bank hopes to expand the program nationwide.
"We've had positive responses from dealers and the companies we've contacted," Kessler says. "We are negotiating with them to market the prepaid auto savings plan nationally."
The auto accounts are authorized by the Uniform Gifts to Minors Act, a federal law that allows a parent or guardian to invest as much as $10,000 annually in a bank account on a child's behalf. All of the money in the account must be used for the child's benefit.
The interest earned is subject to taxes when the child becomes an adult. But Jorg Kaltwasser, a senior tax partner at the Dixon Hughes accounting firm in Memphis, Tenn., says the appeal of such accounts is that many 18-year-olds have little or no taxable income, placing them in the lowest tax bracket.
Kaltwasser says he finds "nothing magic" about the auto accounts. He says that once a child turns 18, he or she controls the account and can spend it for any purpose, not necessarily a vehicle.