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Can you Give a Certificate of Deposit as a Gift?

Chris Gottschalk

Chris Gottschalk About The Author

Dec 8, 2023 2:34:22 PM

It’s no secret that trying to get the perfect gift can be a hassle. Trying to figure out what someone would really like can be challenging on its own, but trying to navigate through endless options and relentless commercials can make the task even harder.

Fortunately, there’s a one-size-fits-all gift that children and teenagers will all appreciate -   MONEY! A great option to make that money go further is to use it to open a certificate of deposit, otherwise known as a CD.

Should you Give a Certificate of Deposit as a Gift?

Certificate of deposit as a gift

What you Should Know About Certificates of Deposit

Before you can decide whether or not to open a CD with your child or teen as a gift, it’s a good idea to review the basics of a certificate of deposit.

The basics of a certificate of deposit

When you open a CD, you’re putting a certain amount of money in an account for a set amount of time. You, or the person you’re giving the CD to, won’t be able to touch that money while it’s in the CD, at least not without paying an early withdrawal penalty. In return, you get a higher rate of interest on the money you put in the CD.

Why are CDs a good investment option?

In addition to the higher interest rate, CDs have other advantages that make them an excellent place to invest your money.

  • CDs are predictable. When you open a CD the interest rate is locked in, so you’ll be able to calculate how much you’ll earn when your CD matures.
  • CDs are safe. The money you put in a credit union’s certificate of deposit is insured by the National Credit Union Association (NCUA) or the Federal Deposit Insurance Corporation (FDIC) for banks, for up to $250,000 per person, per institution, per ownership category.
  • CDs help you avoid temptation. You can’t touch the money in a CD without paying a penalty, so you won’t be tempted to spend that money on an impulse buy.

Got questions about certificates of deposit? Ask us! 

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Why is a Certificate as a Gift Such a Good Idea?

Admittedly, opening a certificate of deposit isn’t a traditional gift, like toys or clothes. However, it has some advantages as a gift that put it head and shoulders above other money related gifts, like simply giving cash or a gift card.

A certificate of deposit grows money

The biggest advantage that CDs have as a gift is that the initial amount you put on the CD will grow until the CD matures. That means the child who gets the CD will get to watch their money grow over the life of the CD.

A CD teaches patience

The minimum term of a First Alliance Credit Union CD is six months. The longest? Five years.

This means that, while your child will get to watch the money in the CD grow, it won’t happen immediately. They’ll have to wait for their funds to grow, and as a result they’ll learn patience. Fortunately, they’ll be able see their money grow month after month through your credit union or bank’s online banking platform or mobile app.

A CD teaches financial literacy

When you gift a CD to your child, you’re not just giving them money. You’re also giving them a valuable lesson in financial literacy. Gifting a CD to your child shows them:

  • The value of saving money
  • How interest works
  • The advantage of saving your money in different ways

Even better, when your child gets a CD, you can use it as a springboard to talk with them about other financial literacy topics. For instance, you can talk with them about how they’ll use the money once the CD matures and use that as a way to help them set financial goals. You might even encourage them to reinvest the money in another CD and help them formulate a savings strategy.

Why get a CD as a gift

How to Choose the Right Certificate of Deposit for a Gift

So once you’ve decided to give a certificate of deposit as a gift to your teen or child, you’ll have to figure out what kind of CD to give. In particular, you’ll have to decide on three factors.

The amount of money you’ll put in the CD

The first thing you’ll have to consider when opening a CD account is figuring out how much money you’ll put into it. You’ll have to at least fulfill the minimum deposit requirement, which in the case of First Alliance Credit Union CDs is $500. You can also open a First Alliance youth CD for only $100 (more on that later). 

When you’re figuring out how much money you’ll put into the CD, think about what you’re comfortable giving. You’ll probably also want to consider how you’ll want your child or teen  to use the money you deposited in the CD.

Interest rate and term of the CD

Once you know how much you want to put in the CD, the next step is to determine how much interest you’d like the CD to earn. This is very closely tied to the term of the CD, since longer terms give better interest.

Again, there’s no one right answer to this question. You’ll want to consider how long you want children to wait to get the money in the CD and how much their money will grow due to the interest rate. Maybe you’d like your children to get the satisfaction of seeing their money grow month after month, or maybe you want to give them a taste of how their money can grow thanks to compound interest and then give them the freedom to invest the money on their own.

Estimate the saving you can earn on a CD now. Try our free interest calculator.

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How to Give a CD as a Gift

Once you’ve decided you want to give a CD as a gift and determined how much you’d like to put in it, all you need to do now is open the CD.

Setting up a joint youth account

In order to give a certificate of deposit as a gift for your child or teen, you’ll first have to open a special type of joint banking account, called a custodial account. This is because minor children by law can’t open a savings account on their own, they need a parent or guardian to open the account on their behalf. That being said, a custodial account and all the money in it are the property of the child, but managed by you, the parent or legal guardian, until the child turns 18.  

Don't let this jargon overwhelm you though. These types of joint accounts for children are very common at both banks and credit unions, they are often referred to as youth accounts or youth savings programs.

The youth and teen accounts at First Alliance Credit Union, for example, only require a small deposit of $5 to get started and can even be opened online in less than 10 minutes.

The advantages of opening a youth CD

Once you’ve opened the joint youth account for your child, you can then open the youth CD. At First Alliance Credit Union, you can open a youth CD for only $100, as opposed to the higher minimum deposit requirement of $500 that traditional CDs require.

When you open a youth CD at First Alliance Credit Union, you’re not just giving your children money. You’re also giving relatives the ability to contribute to the CD as well.

Unlike traditional CDs, you can keep depositing money in a youth CD after you’ve opened it. Once you’ve got the CD information anyone can make a deposit, and the funds will be kept in the CD until it matures. 

Once the Youth CD matures, your child will have access to spend or continue saving the money. You, as the parent, will continue to be able to supervise the account and help them make smart financial choices along the way.

Why get a First Alliance Youth CD

Open up a youth account at First Alliance Credit Union 

Open Account

What are the Limits on Giving a CD as a Gift?

While there are a lot of advantages of giving a CD as a gift to your child, you should know that there are some potential drawbacks. Knowing what they are can help you decide if giving a certificate of deposit as a gift is a good idea.

You have to wait to get the money

The main drawback of giving a CD as a gift is that your child will have to wait to use the money. If you know children, you know that patience isn’t their strong suit, and they might get frustrated once they learn this super-cool gift you got them won’t be available for months, or even years.

If you’re planning to give children a CD as a gift, you might want to get them another tangible gift that they can play with while they’re waiting for their CD to mature. If they’re old enough, you might want to show them how to access their account online so they can see their money grow month after month.

You can’t give a CD to another adult

You might have noticed throughout this blog that we’ve only discussed getting certificates of deposit as a gift in the context of getting something for your child. If so, you might have wondered whether or not adults can get a CD as a gift. Unfortunately, children are the only ones who can get a CD as a gift, and it usually has to be your child specifically.

If you would like to give an adult a monetary gift, you might want to consider setting up a trust fund for them. 

Why can’t I give a CD to another adult?

A CD is technically a type of bank account, and they’re controlled by the same type of laws. That includes the laws that require financial institutions to obtain, verify and record the information of anyone that opens an account.

This law prevents people from opening accounts for literally anyone else, including criminals and terrorists. However, it also stops you from giving someone a CD as a gift.

CDs are expensive

There’s no getting around the fact that CDs require hundreds of dollars to open up. That’s substantially more than most people spend on gifts for children. If you open up a youth CD at First Alliance Credit Union, though, you won’t have to spend quite as much—and there’s no minimum requirement for anyone who wants to put in additional funds

Get a Youth CD as a Gift With First Alliance Credit Union

If you’d like to get your child a gift they’ll remember, open a certificate of deposit with them. They’ll get to watch their money grow over several months, and they can learn the basics of financial literacy in the process.

While you can open up a CD at almost every credit union and bank, opening a youth CD at First Alliance Credit Union eliminates a lot of the hassle. You only need to deposit $5 to become a member, and once you do you’ll be able to open up a youth account and youth CD. If you get stuck, our member advisors will be happy to help you through the process and give you expert information about opening an CD and how to share that information with anyone who wants to contribute.  

If a CD isn't sounding like the right option for you and your child, consider taking advantage of our Greenlight partnership instead! Gaining access to Greenlight through our partner program will give your child the chance to learn valuable financial lesson by giving them their own debit card and app (still controlled by you!). Click the button below to learn more and get started.

Get Greenlight Today

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.