If you're concerned about your child's financial future and want to contribute to their nest egg at a young age, a certificate of deposit is a great option. This method of investment is easy to use and it offers plenty of great benefits to kids. Here are some facts about certificates of deposits you need to know in order to make a smart decision about which investment method you plant to use to help your child's future.
What Are They?
A certificate of deposit, or CD, can be purchased at any bank. Essentially, you are making a deposit to the bank and in turn they will issue you an official certificate that tells you the amount you've initially deposited, the interest rate at which you will be paid, and the length of time the money must stay in the account before it can be withdrawn. Before you purchase a CD, do a bit of shopping to find which banks are offering them at the highest rates. The higher the rate, the higher the end return.
What Makes CDs A Good Choice?
Unlike a traditional savings account, a certificate of deposit usually pays back at a higher rate. The different kinds of CDs available have different time frames for which you have to keep them in the bank. Decide what length of time you think the CD should have before your child can withdraw it. Remember that the longer you leave the CD in the bank, the more interest it will accrue and the more money there will be to withdraw when your child is able.
What Are Some Other Benefits Of CDs?
Just like anything else you have in the bank, your child's CD is protected by the FDIC, so their money is safe. With a certificate of deposit, the money must sit for a set amount of time. This amount of time can be as short as three months or as long as five years - or even longer in some cases. The money can always be withdrawn earlier but there will be a penalty, so this is important to tell your child in case they get tempted to take the money out sooner. Keep in mind that the interest rate attached to the CD is fixed, meaning it will stay the same as long as your child owns it. They can watch as their money multiplies over time and you can always add more CDs to their account for graduation or birthday gifts. Certificates of deposit are an easy way to give your child something they can watch grow and appreciate as they get older. Contact a bank, like Rio Grande Credit Union, to get started.