Benefits of Opening a CD for Your Child
07/16/2025
Benefits of Opening a CD for Your Child
As we continue to go through various ways to ensure your child’s future financial wellbeing, there are some topics that are often overlooked. Not only do Certificates of Deposit (CDs) offer valuable financial lessons, but they can be a low-risk avenue for investing your child’s earnings. Let’s take a deeper dive into CDs and how they can help!
A CD is a bank product that offers an interest premium in exchange for agreeing to leave the funds with the institution for a set period of time. This can mean leaving the money in the CD for terms of as low as one month, and sometimes as long as 10 years. Interest rates and terms vary widely from bank to bank, as well as penalties for early withdrawal. CDs also offer fixed interest rates and are generally federally insured, making the investment fairly low risk. Before deciding which bank to open a CD with, be sure to research your options.
Opening a CD for your child is beneficial in many ways. The first way is that it offers an important lesson in saving and how interest works to children and young adults. By design, CDs require children and young adults to save for the future. Because the money deposited cannot be accessed without penalty for a set amount of time, it helps children learn to manage their money and save for long term financial goals. CDs also introduce children to interest in a low-risk environment. They learn the benefits of putting money away so that it can grow rather than spending it all.
As your child is actively learning about savings and interest, they are also physically earning the benefits. They can see how their investment grows over time and can seriously consider how this money will be used to benefit their financial futures. CDs offer guaranteed returns (if all terms are followed) and present fewer risks than the market or other investments. Like savings accounts, CDs earn compound interest. This means they are earning interest on top of interest as they reinvest into the account. As CDs often have higher interest rates than traditional savings accounts, children learn to maximize earning potential. In addition, they can be a gateway to other activities that will help them build credit, such as opening a credit card or taking loans when of age.
There are some drawbacks to CDs that must be considered. One is that for underage children, custodian accounts are usually established to fund the CD. These come with their own rules and regulations, and often children are not able to access the funds until they are of age, not necessarily when the CD term expires. Furthermore, CDs offer far less liquidity than traditional savings accounts or investments. Because CDs often have penalties for early withdrawals, it makes them undesirable in the event of an emergency or unexpected expense. Also, because CDs are a low-risk and fixed interest rate investment, they do not offer as high a return as investing the money in the market.
CDs can be an excellent real-time exercise in financial literacy for children. If you would like to learn more about opening a CD at The Savings Bank, you can find more information here: https://www.thesavingsbankohio.bank/personal/personal-savings/certificates-of-deposit-cds.html.
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Sources:
https://www.cbsnews.com/news/why-you-should-open-a-cd-for-your-child-now/
https://www.experian.com/blogs/ask-experian/how-to-open-cd-for-child/