Can you open a certificate of deposit for your child?
A certificate of deposit (CD) account for kids offers a simple way to save money for a child since it locks money up for a set period of time and pays a fixed interest rate. CDs are also FDIC insured up to $250,000 per depositor, per insured bank, which adds a layer of safety.
If you searched for “CDs for kids,” you might have seen results about music CDs, too. In this guide, we are talking only about bank CDs for children, not music you play for fun or relaxation.
Many parents ask questions like “Can I open a CD for my child?” or even “Can I open a CD for my grandchild?” The short answer is yes in most cases, through a custodial setup. This article will walk through how it works, who can open one, when taxes apply and how to compare options at different banks and credit unions.
What is a certificate of deposit for kids?
A certificate of deposit for kids works just like a regular CD. You put money in, choose a set term like 6 months, 1 year or longer, and the bank pays a fixed interest rate. The difference is that a child cannot legally open the account on their own. That is why an adult opens it as a custodian under rules like UGMA or UTMA, which let you manage money for a minor until they reach adulthood.
These accounts are often used as a simple, low-risk way to save for future goals. That might be college, a first car or a down payment on a home. Because CDs have fixed rates and fixed terms, you know exactly how much interest you will earn.
Most CDs are also insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank. That adds peace of mind since your money is protected if the bank fails.
Compared to regular savings accounts, CDs usually pay higher rates. However, you cannot withdraw funds before the CD matures unless you incur a penalty. Investment accounts typically offer better growth over time but come with more risk.
Here is a quick comparison:
Understanding custodial accounts: UGMA vs. UTMA
As previously mentioned, custodial accounts are what make it possible to open a CD for a child in the first place. The two most common types are UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). Both let an adult manage money or assets for a minor until they reach the age of majority, which is usually 18 or 21 depending on the state.
These accounts follow a few simple rules:
- Funds are an irrevocable gift, which means once you put money in, it legally belongs to the child.
- The custodian controls the account until the child becomes an adult.
- There is only one beneficiary, meaning the money is set aside for that specific child.
Once the child reaches the age of majority, the account is automatically transferred to them with no restrictions. At that point, they can use the money however they want, even if it is not what the parent originally intended.
It is also important to understand how these differ from joint accounts. With a joint account, both people share ownership and access. With UGMA and UTMA accounts, ownership is transferred to the child from the start, and the adult is only managing it.
Because of the irrevocable nature of these accounts, you cannot take the money back once it is deposited. That is a key point many families overlook.
From a tax standpoint, custodial accounts may be subject to the “kiddie tax” rules from the Internal Revenue Service (IRS). In general, the first $1,350 of unearned income is tax-free, the next $1,350 is taxed at the child’s rate and anything above $2,700 is taxed at the parent’s rate.
How to open a CD account for a child: Step-by-step process
Opening a CD for your child is a pretty simple process once you know the steps. Most banks and credit unions let you do it online or in person, and you can usually get it set up in under an hour.
Step 1: Research financial institutions
Start by comparing banks and credit unions. Look at interest rates, CD terms and minimum deposit rules. Online banks often have higher CD rates across the board along with lower minimum deposit requirements, while traditional banks sometimes run CD specials with competitive rates that are worth a closer look.
Also read over FDIC recommendations for opening a CD, including what to look for (and watch out for) in an agreement.
Step 2: Pick the account type
Decide if you want a UGMA/UTMA custodial account or a joint account. Many parents choose UGMA or UTMA since it clearly sets the money aside for the child and follows the rules for minors.
Step 3: Choose a CD term
Available CD terms typically range from 3 months to 5 years. Shorter terms work well for near-term goals, while longer terms can make sense if you’re saving for a child’s future.
Step 4: Gather documents
Opening a CD for a minor typically requires the child’s birth certificate, Social Security number and your own ID. You may also need proof of address for the custodian.
Step 5: Complete the application
Fill out the forms required to open a CD online or in a branch. You will provide details for both the child and yourself as the custodian.
Step 6: Fund the account
Add your initial deposit, and remember that minimums vary by institution. Traditional banks often require $500 to $1,000, while online banks may start as low as $0 to $500.
Step 7: Confirm the CD details
Once funded, you will get confirmation with the CD terms, interest rate and maturity date. This is your record of the agreement.
By the end, you will have a fully set up CD that earns interest while keeping the money safely locked away until maturity.
Learn more about how to open a CD account for a child
Top banks and credit unions offering CDs for kids
When it comes to finding the most competitive CD rates, online banks tend to shine. For example, Ally Bank and Marcus by Goldman Sachs typically offer competitive APYs because they have lower overhead costs. They also have lower minimum deposit requirements, which can make it easier to start a CD for a child with a small amount of money.
Credit unions are another good option. Institutions like Alliant Credit Union and Navy Federal Credit Union often offer solid rates along with member perks. Some even provide slightly better terms for longer CDs or special promotions that change over time.
When comparing options for a CD for kids, look at CD term lengths, which can range from a few months to several years. Check the APY, since that tells you how much interest you will earn over time. Also pay attention to minimum deposit rules, which can range from a few hundred dollars to $1,000 or more depending on the institution.
The current rate environment will also play a role in your search. As of mid-year in 2026, CD rates remain slightly elevated due to Federal Reserve policy. That makes this a good time to lock in a CD if you are saving for a child’s future goals.
At the end of the day, the best choice depends on how much you want to deposit, how long you want to lock the money up and whether you prefer online convenience or in-person banking.
Tax implications and financial aid considerations
If you open a CD for a child, it is important to understand how taxes can work. Interest earned in a CD is usually subject to what is known as the “kiddie tax.” This means the money is reported under the child’s Social Security number, but it may be taxed at different rates depending on how much is earned.
Generally speaking, the first $0 to $1,350 of unearned income is tax-free, whereas the next $1,350 is taxed at the child’s tax rate. Anything above $2,700 is taxed at the parents’ marginal tax rate. These rules are set by the Internal Revenue Service and can change over time, so it is always smart to double check current limits.
Even if the CD earns very little interest, you may still need to file a tax return for the child each year. That depends on the amount earned and other income the child may have.
Another thing to think about is college financial aid. Custodial accounts like UGMA and UTMA are counted as the child’s assets when filling out the Free Application for Federal Student Aid (FAFSA).
That matters because child-owned assets are assessed at about 20%, while parent-owned assets are usually assessed at a much lower rate of around 5.64%.
This difference can reduce eligibility for need-based aid if the account balance is large.
For families with bigger CD balances or long-term savings plans, it may be worth talking with a tax professional to see how a custodial CD could affect your overall financial plan.
Benefits and limitations of CDs for kids
CDs can be a helpful way to save for a child, but they are not the right fit for every goal. They work best when you know you will not need the money for a set period of time, usually one to five years.
Here’s a rundown of benefits and limitations of opening a CD for a minor.
Benefits
- Guaranteed returns no matter what the market does
- Principal protection backed by the FDIC (up to $250,000 per depositor, per insured bank)
- Often have higher interest rates than regular savings accounts
- Encourages disciplined saving since early withdrawals come with penalties
- A simple way to teach kids about saving for the future
Limitations
- Early withdrawal penalties (often equal to three to 12 months of interest) can apply if you access the money early
- No extra deposits allowed once the CD is opened
- You could miss out if interest rates go up after you lock in
- Less flexible than a savings account for unexpected needs
Overall, CDs tend to work best for short to medium term goals with a clear timeline. For long-term goals like retirement or college savings, other types of investments may work better.
CDs for kids: Conclusion and next steps
CDs for kids offer a simple and safe way to build savings through custodial accounts. They come with predictable returns and can be a good fit for families who want to limit risk while saving for future goals.
That said, CDs for kids typically work best when safety matters more than growth and you have a clear timeline in mind for the money.
Before opening a CD for a minor, it helps to compare current rates across several banks and credit unions since offers can vary widely. Families with more complex financial plans may also want to speak with a financial advisor.
