Can You Open a Certificate of Deposit for a Minor?

Certificates of Deposit (CDs) offer a secure way to save. For parents and guardians, CDs can establish a financial foundation for younger individuals, teaching them about savings and earning interest. Opening a CD for a minor involves specific account structures designed to manage assets on their behalf until they reach adulthood, supporting future needs like higher education or a first car.

Understanding CD Options for Minors

When considering a CD for a minor, the primary options involve either a custodial account or a joint account. Custodial accounts, governed by the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), involve an adult acting as the custodian, managing the funds on behalf of the minor beneficiary. The minor is the legal owner of the assets but cannot access them until reaching the age of majority (typically 18 to 21), when the custodian transfers full control.

Joint accounts, conversely, involve both an adult and the minor as co-owners of the CD. This structure grants both parties access to the funds, although banks usually require an adult to be a signatory for a minor to have an account. While joint accounts offer simplicity in setup, they carry implications regarding ownership and access, as either party can typically withdraw funds. Custodial accounts generally offer more structured control by the adult until the minor is deemed old enough to manage the assets independently.

Information and Documentation for Opening a CD

Opening a CD for a minor requires specific information and documentation for both the minor and the adult. For the minor, financial institutions will request their full legal name, date of birth, and Social Security Number (SSN). A birth certificate might also be needed.

The adult, whether acting as a custodian or a joint owner, must provide their full legal name, date of birth, and SSN. A government-issued photo identification, such as a driver’s license, is also required, along with proof of their current residential address. Finally, the initial deposit amount for the CD will be needed to fund the account once the application is complete.

Opening Process and Account Management

With all necessary documentation prepared, the process of opening a CD for a minor can begin. CDs can be opened at various financial institutions, including traditional banks, credit unions, and online banks. Online banks often offer competitive interest rates due to lower operating costs, making them a popular choice for maximizing savings growth.

The application process typically involves presenting the gathered documents to a bank representative or submitting them through an online portal. This step confirms the identities of both the minor and the adult. After the application forms are completed, the initial deposit is made to fund the CD. Once the CD is active, account management involves receiving regular statements, which detail interest accrual and the CD’s current value. It is also important to understand the CD’s maturity options, as the funds and accumulated interest become available at the end of the specified term.

Key Considerations for Minor CDs

Several important financial and legal considerations arise with CDs held for minors. Interest income earned from a minor’s CD is subject to tax, often under “kiddie tax” rules. For the 2024 tax year, the first $1,300 of a child’s unearned income is tax-free, and the next $1,300 is taxed at the child’s rate. Any unearned income exceeding $2,600 for 2024 is taxed at the parent’s marginal income tax rate. For the 2025 tax year, these thresholds adjust slightly, with the first $1,350 being tax-free, the next $1,350 taxed at the child’s rate, and amounts above $2,700 are taxed at the parent’s rate. The minor’s SSN is required for proper tax reporting.

The minor’s access and control over the funds are determined by the account type and the age of majority in their state. For custodial accounts, the minor gains full control of the funds when they reach this designated age. Early withdrawals from a CD before its maturity date typically incur penalties, which can result in the forfeiture of a portion of the earned interest. CDs are generally considered low-risk savings vehicles, and most are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank, per ownership category. This insurance protects the principal and accrued interest in the event of a bank failure.