Giving the right gift for the holidays can be a challenge, especially when it comes to kids. You want to give them what they want – a toy, video game, and of course the tried-and-true gift, money — but where’s the fun in just giving them cash? Well, if it’s money they want, a CD is a great spin on a monetary gift that provides them with savings for the future.

Here are the steps you can take to gift a CD or gift funds to open a CD for the kids and grandkids in your life not just for the holidays but all year round:

Find a Financial Institution Offering Custodial Accounts with Competitive CD Rates

Custodial bank accounts allow an adult (parents, grandparents, aunts, uncles, friends etc.) to open a bank account – in this case a certificate of deposit – for a child. The adult (18 years or older) will oversee the account until the child reaches a certain age – the age of majority. The age of majority for custodial bank accounts can range from 18, 21, or 25 years old, depending on the state you live in.

Open a Custodial Account for Your CD

Depending on the financial institution, they will open the CD as a custodial ownership Uniform Gift to Minors Act (UGMA) or a Uniform Transfers to Minors Act (UTMA) where the CD funds be irrevocably gifted to the minor and will only be used in the best interest of the minor (i.e. to buy a car, get an apartment, etc.) before the age of majority or paid to the minor when they reach the age of majority.

Look for banks or credit unions that provide competitive CD rates and clear options for custodial accounts. Online platforms like CD Valet simplify the process by comparing rates nationwide, helping you find the best promotional CDs for your gift.

You will need to provide the following documents and/or information to your institution of choice:

Child’s information (i.e., social security number, birth date, and/or school ID or passport – not necessary but if it’s available)
Adult’s US ID (i.e., driver’s license or passport)
Adult’s social security number

Confirm with the financial institution what specific documents are required. Once opened, the CD funds are irrevocably gifted to the child and can only be used for their benefit.

The Gift of CDs May Not Be Immediate, But Patience Pays Off

Once your child has reached the age of majority, any funds under a Custodial UGMA or UTMA ownership should be turned over to the minor. This is as simple as having the Financial Institution change the ownership of the CD into the minor’s name when they have reached adulthood. Or cashing in the CD and paying the funds to the minor. By changing the CD to the now non-minor, they can keep the CD open and continue to earn an interest rate on funds for their future needs.

Final Takeaway

Gifting a CD or gifting funds to open a CD for a child at an early age provides them with a financial foundation with guaranteed returns, earned interest, safety, and most importantly the ability to instill good financial habits. They can begin setting aside a portion of their allowance or monetary gifts into CDs or savings accounts, which will give them firsthand experience of what it takes to manage their money responsibly and learn the power of compound interest, a gift of financial discipline for years to come.

FAQs

Can I Give a CD to an Adult?

Not directly. Financial institutions require the account to be opened in the adult’s name. However, you can give funds to an adult child or grandchild and accompany them to open a CD. This shared experience can be a unique way to encourage financial planning.

Are Gift CDs Taxable?

You can gift up to $17,000 annually per recipient ($34,000 for married couples) without triggering the federal gift tax. Gifts exceeding this limit may require the donor to pay taxes. Always consult a tax professional to ensure compliance with IRS regulations.

If your gift is greater than the federal gift tax allows, as a donor, you are responsible for paying the tax versus the recipient who received the monetary gift. However, in some cases, if you gift money to your child and the amount does not exceed the maximum allowable gift, you may be able to avoid paying taxes. The IRS reviews the exclusions for gift taxes annually, so it would be best to consult a tax professional before gifting a CD.

How do I gift a CD to a Child?

Find a financial institution that offers both custodial ownership and a good CD rate. CD Valet is an online marketplace that connects consumers with financial institutions to compare and open CDs with the best rates and terms nationwide. And just like many retailers’ offer of holiday promotions, banks, and credit unions offer CD “Promos” with particularly attractive interest rates to entice savers to open accounts with them.

Next, provide documents and information for both you and the child to open the investment account. As the parent, grandparent, or guardian of the child, you will be named the custodian of the account until the child reaches the age of majority – typically between 18 to 25. Once they have reached the age of majority, the child will have access to the account and all the funds within the account. The bank will ask the custodian to change ownership or close the CD. If for some reason, the custodian and minor are no longer in contact, the bank will seek counsel from the legal team before turning over funds directly to the minor.