Here's Why a CD Would Make the Perfect Christmas Present
KEY POINTS
- You can give a CD to minors (like children or grandchildren) by opening a custodial account and depositing money in their name.
- Once your child reaches maturity (18 to 25 years old, depending on your state), they will gain control of the CD.
- Today's uber-high CD rates make these not only good gifts but valuable financial lessons.
The weeks leading up to Christmas generate a lot of enthusiasm. The presents are piling up underneath the tree, the kids and grandkids are eager to open them, and even the dog is sniffing at that bacon-flavored wishbone stuffed in a stocking up high lest he tear into the wrapping paper early.
Then the big day comes, the new toys are played with and strewn about the room, the dog is passed out from turkey feedings from the table (who knows where the wishbone went), and, slowly, gradually, ever so slightly, the post-holiday blues begin to settle in.
Though there might not be a way to prevent the loss of excitement after Christmas, there's a way to extend the spirit of giving with a certificate of deposit (CD). It might not be the most exciting gift they ever receive (how could a CD compete with Barbie, Hot Wheels, and PlayStation?), but it is a gift that keeps on giving. Here's why CDs would make a perfect Christmas gift this year.
Lock into a high interest rate
In the past, CD rates were so lackluster, to give one as a Christmas gift would have been as significant as dropping a roll of pennies in your kid's stocking.
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But all that has changed in 2023. Thanks to a mega push by the Federal Reserve, whose campaign against inflation led to the greatest round of federal funds rate hikes in over a generation, CD rates are well north of 5%. These days, you can find many short-term CDs -- that is, those that mature in 12 months or less -- as high as 5.5%.
Now, younger kids may not care so much about earning interest through a CD (and, if they do, good on you for introducing them to the secrets of money). But older kids, especially those who are a few years from graduating from high school or college, might perk their ears. Imagine telling them you deposited $500 in a three-year CD with a 4% APY. When they graduate, that $500 could be squarely theirs, plus the $60 they earn on interest.
Not only will your kids get cash instead of a toy or game (which will likely be out of fashion in six months or less), but you can also teach them about saving money. Here's what happens, you might say, when you save instead of spend. You could even set up a CD ladder, teaching them how to strategize with today's top-paying CDs.
How to gift a CD to a minor
To give a CD as a gift, you can open a custodial account and deposit the funds for them.
Many banks offer custodial accounts for CDs. You just need your child's personal information (like birthday and Social Security number) to open one. You'll be listed as the custodian, which means you'll approve transactions on the account until the minor reaches the age of maturity. Depending on the state in which you live, that age could range from 18 to 25. If the CD matures before your child reaches the age of maturity, you could choose to reinvest it in another CD, savings account, or another financial product with a good return of investment.
Some CD terms you might want to consider as gifts include:
Since CD rates are likely going to drop in 2024, December might be the best month to lock into these high rates. That can make many top-paying CDs hot Christmas gifts, even if Santa doesn't have many on his list.
Our Research Expert
Steven Porrello writes about personal finances topics ranging from credit card offers to Costco deals to choosing the best places to park your cash.
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