Accumulating money for your child's future needs like college expenses is important. Equally valuable is teaching a child how to save and manage money. Many parents choose to start their children's financial education by opening a regular savings account. However, savings accounts tend to pay low interest rates. When a certain amount has been saved, you may want to move it into a certificate of deposit (CDs). A minor CD account in a kid's name not only provides a better return, it can be used as the next step in her financial education.
Step 1
Research CD offers at different banks. Bankrate.com says that banks often offer premium interest rates and other incentives to attract new CD investors. Be sure to check the terms and conditions of the CD, especially the penalties for early withdrawal.
Step 2
Ask the banker what rules apply to minors opening a CD account in your state. Minors normally may not enter into such contracts. Many states make provisions allowing minor children to open bank accounts of various types, however. You may need to be listed on the account as joint owner even though the CD account is in your kid's name.
Step 3
Discuss the account with your child. Explain that the bank offers guaranteed higher interest rates in return for a commitment to leave the money on deposit for a specified time period until maturity. Banks then lend the money out to borrowers. The assurance the money won't be withdrawn reduces the bank's risk.
You and your child may need to decide whether to reinvest the interest or have it paid out. Reinvestment will make the account balance grow. On the other hand, if your child gets an interest check every three months, this may catch and hold his interest in such an account.
Step 4
Take your child with you to open the CD account in her name. She will need her Social Security number. You may also need to provide your Social Security number, a valid photo ID like a driver's license, and proof of residency such as a current utility bill or signed lease. A bank officer will help you open the account, which normally takes just a few minutes. If you are transferring the funds from another account, bring the account information.
Things You'll Need
- Social Security numbers
- Proof of residency
- Valid photo ID
