Can You Open a CD for a Minor? What You Need To Know

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Certificates of deposit (CDs) are a popular investment option for individuals looking to save and grow their money.

But what if you want to open a CD for a minor, such as your child or grandchild? Is it possible to do so?

Age Restrictions

Most financial institutions have age restrictions when it comes to opening a CD. Typically, the minimum age requirement to open a CD account is 18 years old. This means that minors, who are below the age of 18, may not be eligible to open a CD in their own name.

However, there are alternative options available for minors to benefit from CDs, as we will discuss further.

Custodial Accounts

One way to open a CD for a minor is through a custodial account. A custodial account allows an adult, usually a parent or guardian, to manage funds on behalf of a minor until they reach the age of majority.

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The adult acts as the custodian and is responsible for making financial decisions and managing the account until the minor becomes of legal age.

Opening a CD within a custodial account enables you to save for the minor’s future while enjoying the benefits of a CD investment.

UTMA/UGMA Accounts

Another option is to open a CD under a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account. These accounts are designed specifically for minors and allow an adult to hold and manage assets on behalf of the minor until they reach a certain age (usually 18 or 21, depending on state laws).

UTMA/UGMA accounts provide a legal structure for gifting and transferring assets to minors, including CDs. It should be noted that, when applying for financial aid concerning post-secondary education, funds held in such accounts are considered the student’s own assets when applying on the FAFSA. This may limit potential student aid options.

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Considerations for Minors

When opening a CD for a minor, there are a few important considerations to keep in mind. First, minors generally cannot access or make transactions on the account until they reach the age of majority, unless otherwise specified by the custodial or UTMA/UGMA account terms.

This ensures that the funds are preserved for the minor’s future needs or designated purposes.

Second, as the adult managing the account, it is important to understand your responsibilities and legal obligations regarding the custodial or UTMA/UGMA account.

Tax Implications

Opening a CD for a minor may have tax implications, especially if the interest earned exceeds certain thresholds. Interest income from the CD may be subject to federal and state income taxes.

It is advisable to consult with a tax advisor or accountant to understand the potential tax consequences and any available tax exemptions or benefits.

Research Financial Institutions

When considering opening a CD for a minor, it is essential to research different financial institutions and compare their offerings. Look for institutions that provide custodial or UTMA/UGMA accounts and offer competitive interest rates and terms.

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By leveraging these options, you can help secure the financial future of a minor through the benefits of a CD investment.

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The article above was produced via automated technology and then fine-tuned and verified for accuracy by a member of our editorial team.