Guide to Opening a Certificate of Deposit (CD) Account for Your Child

A certificate of deposit (CD) can be a good option to consider as a savings vehicle for a child. With a CD, you can deposit money for a specific term, such as a few months to a few years, and earn a fixed rate of interest.

CDs are generally considered a low-risk savings option. If held at a bank insured by the Federal Deposit Insurance Corporation (FDIC), they’re federally insured for up to $250,000 per depositor, per bank, per ownership category and can offer minimal but steady growth over the term.

An adult can open a custodial account for a child who will assume management of the CD account when they reach the age of majority, which is set by state law.

However, there are some pros and cons you should know before opening a CD, including how CDs compare to other investment vehicles for your child.

Understanding Certificates of Deposits

A CD is considered a type of savings account. The account holder deposits the funds and agrees not to withdraw the money for a specific period of time, effectively loaning the money to the bank. The bank pays the CD holder interest based on the total amount deposited and the maturity date of the CD (the term).

You can open a CD at a bank or a credit union. You can typically do this in person or online, depending on the institution. Most CDs are federally insured up to $250,000.

If the account holder decides to withdraw the funds before the end of the term, they are typically charged an early withdrawal penalty, often forfeiting a portion of the interest. For example, if you deposit $1,000 into a two-year CD and you want to withdraw the funds after one year, you would only be entitled to the amount of interest earned up until that point, minus any fees or penalties.

CDs are generally considered a safe investment, but the interest they earn tends to be lower than some other options because they’re lower-risk investments. When opening a CD account for a child, it’s important to consider whether a low-risk investment is what you’re after or whether you’d prefer an investment that offers higher growth potential but also possibly more risk.

Can a Child Have a Certificate of Deposit?

A CD for kids can be a solid start to an investment plan for your child. It’s also a way to help explain the dynamics of saving to them and what it means to earn interest on a principal deposit.

That said, minors cannot legally open CDs on their own. An adult must open a CD for the child in their name. The child then gains control over the account when they reach the age of majority.

One thing to keep in mind about a CD for kids is that funds held in CDs and other savings accounts can affect a child’s eligibility for future financial aid. This is an important consideration, as it could affect how much a family might have to pay for college tuition.

Who Would Own the CD?

A minor cannot apply for a CD, but they can own it. That means that the account cannot be given to anyone else.

An adult, usually a parent or legal guardian, can open a custodial account for a minor under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act, which is an extension of the UGMA. A custodial account allows one person to deposit funds into an account for another. The child assumes control over the account once they reach adulthood. The age of adulthood is not federally mandated. However, in most states, it’s 18.

How to Give a Certificate of Deposit to a Minor

Here’s how to set up a CD for a minor and transfer the account to them when they reach adulthood.

Select the Bank Where You Want to Purchase the CD With

Explore bank account options and decide which bank or credit union you want to open the CD with for your child. Compare interest rates based on the amount you intend to deposit and the term for the CD. Also, look at any penalties and fees the bank might charge.

List Yourself as the Custodian and the Child as the Owner

Fill out the form online or in person, stating that you will be the custodian and the minor will be the owner of the CD. You will be asked to provide identifying information such as your Social Security number and the child’s Social Security number.

Deposit the Money in the CD

Deposit the desired amount into the CD account, considering how different amounts and terms might affect the interest rate paid.

Discuss What to Do With the Funds

Opening a CD account for a child presents a “teachable moment” in that they, as the owner of the CD, need to think through what the money can be used for once the CD reaches maturity. When the CD matures, you can cash it out, or renew it. If the child is of legal age at that point, the account is transferred to the child. You may have to contact the bank to remove your name from the account.

Recommended: What Are No Penalty CDs?

Are CDs a Good Choice to Help My Child Save?

CDs are among the lower-risk investment options, and they’re a good way to help a child save. That said, CDs also tend to be low-yield investments. If you’re saving for your child’s education, funding a 529 college savings plan might offer more growth potential over time, if that’s your goal.

For longer-term savings, opening a Roth IRA may also be a good choice for parents hoping to provide a more secure future for their child.

Tax Implications of CDs for Kids

There are also tax considerations when opening a CD for kids. CD interest is generally taxable in the year it’s paid or credited to the account (when it becomes available).

The IRS taxes kids’ unearned income, such as interest, dividends, and capital gains, in tiers. As of 2026, for a child with no earned income, up to $1,350 of unearned income is generally not taxed. The next $1,350 is taxed at the child’s tax rate, and amounts over $2,700 are subject to tax using the parent’s rate. So that’s something to keep in mind.

The custodian of a CD should also be aware that they can give up to $19,000 per child in 2026 without owing gift taxes.

Financial Aid Implications of CD Earnings

There are some implications of CD earnings regarding financial aid. If a child is applying to college and has savings in a UGMA, those assets must be disclosed on the Free Application for Federal Student Aid^®. The student may have to pay more of their college costs than if their money had been put in a 529 college savings account.

Is a CD a good investment for a child? That depends on the length of time between the opening of the CD account and the child reaching the age of majority. If the child is a teenager, a CD will provide a guaranteed amount of money, and there’s no risk of loss if the market drops. However, CDs don’t earn a lot of interest, and a growth-oriented investment might earn more and grow faster if the child is younger.

Finally, as noted above, if you’re saving for your child’s education, you may want to explore a 529 college savings account instead of, or in addition to, a CD.

Where Can I Find a CD for a Child?

Most banks and credit unions offer CDs, and they allow custodians to open accounts for a child. Online banks can also be convenient. Many offer competitive interest rates and lower fees. Be sure to compare the interest rates and annual percentage rates of each bank and make sure to understand the penalties that will apply if you withdraw the funds early.

The Takeaway

There are many ways to help your child save. Which one is the best depends on the ultimate use of the funds. CDs are lower-risk, federally insured up to $250,000, and may offer higher interest rates than regular savings accounts. However, other options to consider are a 529 college savings account and a Roth IRA.

CDs are easy to open, and most banks and credit unions offer them. They earn interest on the amount invested as long as the funds are not withdrawn before the CD’s term. If the custodian does withdraw funds before the maturity date, the bank will charge a penalty.

Most online banks also offer CDs, and an adult can open a custodial account online for a child. The child is named as the owner of the account, and they’ll assume control over the account when they reach adulthood, according to state laws.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is the best way to save money for a child?

The best way to save money for a child depends on your goals. Some options include a savings account or a custodial certificate of deposit (CD), a 529 college savings account, or a Roth IRA. Explore the options to determine which is best for your situation.

Can you buy a CD as a gift?

Yes. Under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), an adult can gift a CD to a child.

Can I open a CD for my child?

Opening a CD account for a child is easy using a custodial account. The child will be named as the owner, with you as the custodian, and they will assume full control of the CD when they reach the state’s age of majority. The account cannot be given to anyone else but the named holder.

Photo credit: iStock/Hispanolistic

SOBNK-Q126-048