Yes, you can open a CD for your child, but the account structure depends on their age

You can open a certificate of deposit in your child's name, but you will need to be a joint owner or custodian because minors cannot legally own financial accounts by themselves. Banks handle this in two main ways: a custodial CD, where you act as the legal guardian managing the account until your child reaches the age of majority (usually 18 or 21, depending on your state), or a joint CD, where both you and your child are listed as owners. The money in the account belongs to your child either way—you are not borrowing from them—but you control how it works until they are old enough to take over.

The CD itself works the same as any other: you deposit money, agree to leave it untouched for a set period (three months to five years, typically), and earn a fixed interest rate. The main difference is that the account is registered to your child's Social Security number, so the interest income is taxed on their tax return, not yours. This can actually save your family money if your child has little or no other income, because the tax burden falls in their lower bracket.

Key Takeaways

  • You must be the custodian or joint owner because your child cannot legally own a bank account alone.
  • A custodial CD transfers to your child automatically when they reach the age of majority in your state, usually 18 or 21.
  • Interest earned on the CD is taxed on your child's tax return, which may result in lower taxes than if the money were in your name.
  • You will need your child's Social Security number and a government-issued ID (yours) to open the account at most banks.
  • Some banks set minimum deposit amounts for CDs, and these minimums vary—call ahead to confirm what your bank requires.

Custodial CDs versus joint ownership

A custodial CD is the more common choice for children. You open it under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), depending on your state. You are the custodian, meaning you manage the account and make all decisions about the money until your child reaches the age of majority. At that point, the account automatically becomes theirs to control. The bank will ask you to name yourself as custodian and will print the account in a format like "John Smith, Custodian for Sarah Smith under the UTMA."

A joint CD lists both you and your child as owners with equal rights. Either of you can withdraw money or make changes to the account. This structure is simpler to set up and does not require the account to transfer at a specific age, but it also means your child could withdraw the money without your permission once they are old enough to visit the bank. Joint accounts are more common when the child is a teenager and you want them to start learning about managing money.

The tax treatment is the same either way: interest is taxed on your child's return. The key difference is control. If you want to ensure the money stays in the CD until a specific age, custodial is the safer choice. If you want your teenager to have some say in the account, joint works better.

What you need to bring to the bank

To open a custodial or joint CD for your child, bring your government-issued photo ID (driver's license or passport), your child's Social Security number, and proof of your child's identity. For very young children, a birth certificate usually works. Some banks will accept a copy; others want the original. Call your bank ahead of time to ask what they need.

You will also need to decide how much to deposit and how long you want to lock the money away. The bank will show you the interest rate for each term length—three months, six months, one year, two years, and so on. Longer terms usually pay higher rates, but you cannot touch the money without paying an early withdrawal penalty. If you think you might need the money before the CD matures, choose a shorter term or keep some of it in a regular savings account instead.

Some banks require a minimum deposit to open a CD—often $500 or $1,000, though this varies widely. A few banks have no minimum. If you are opening a small CD, check whether your bank has a minimum before you go in, so you do not waste a trip.

How interest works and what happens when the CD matures

The bank pays interest on the CD at the rate it quoted when you opened it. Interest compounds—meaning you earn interest on your interest—at intervals the bank sets, usually daily or monthly. The longer the CD term, the more time interest has to compound, which is why a five-year CD earning 4.5 percent will grow more than a one-year CD earning 4.0 percent, even though the rates are close.

When the CD reaches its maturity date, the bank will send you a notice. You then have a choice: withdraw the money and interest, or let the bank roll it into a new CD at whatever rate it is offering at that time. If you do nothing, most banks will automatically renew the CD for the same term at the new rate. Read the maturity notice carefully so you know what rate you are getting. Interest rates change constantly, and the new rate might be much lower than what you locked in.

If you withdraw the money before the maturity date, the bank will charge an early withdrawal penalty. This penalty is usually a certain number of months' worth of interest—for example, three months of interest on a one-year CD. The penalty comes out of the CD balance, so you will get less money back than you put in. This is why CDs work best for money you know you will not need.

Tax reporting and your child's tax return

Interest earned on a custodial or joint CD is reported on your child's Social Security number, not yours. The bank will send a Form 1099-INT to your child (or to you, as custodian, if your child is very young) showing how much interest was earned that year. This interest must be reported on your child's tax return.

If your child has no other income and the interest is small, they may not owe any tax at all, depending on the standard deduction for that year. The standard deduction changes annually, but it is usually several hundred dollars. If your child's only income is $200 in CD interest, they probably do not owe tax. If they earned $2,000, they likely do. A tax professional or your state's tax authority can tell you the exact threshold for the year you are filing.

This tax structure is actually one reason parents use custodial CDs: the interest is taxed at your child's rate, which is usually lower than yours. If you had $5,000 in a CD earning 4 percent, you would owe tax on $200 in interest at your rate. If your child owns the CD, that same $200 is taxed at their rate, which is zero if they have no other income. Over time, this can add up.

What happens when your child turns 18 or 21

When your child reaches the age of majority in your state—18 in most states, 21 in a few—a custodial CD automatically becomes theirs to control. The bank will send you and your child a notice explaining that the account is now in their name alone. At that point, they can withdraw the money, let it renew, or move it to another bank. You no longer have any legal right to the money or say in what happens to it.

This is an important moment to talk with your teenager about the CD and what you intended it for. If you opened it to help them pay for college or a car, explain that. If you opened it as a long-term savings tool, talk about why leaving it alone might be a good idea. Once they own the account, the choice is theirs, but a conversation beforehand can help them make a decision that aligns with your family's values.

If your child is still a minor but close to the age of majority, ask the bank whether you can set up the CD to mature around that birthday. That way, the money will be available to them right when they take control of the account, and they will not have to deal with an early withdrawal penalty if they need it.

Where to open a CD for your child

Most banks and credit unions offer custodial CDs. Call your current bank first—if you already have an account there, opening a CD for your child is usually straightforward, and you may get a better rate as an existing customer. If your bank does not offer custodial CDs or the rates are low, check online banks and credit unions in your area. Online banks often pay higher interest rates because they have lower overhead costs.

When you compare rates, look at the annual percentage yield (APY), not just the interest rate. The APY includes the effect of compounding and shows you the true return on your money. A CD paying 4.5 percent APY will earn more than one paying 4.4 percent, even if the difference seems small. Over five years, that small difference adds up.

Make sure the bank or credit union is insured by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration). This insurance protects your money if the bank fails. Most banks and credit unions are insured, but it is worth confirming, especially with smaller institutions or online banks you have never heard of.

Frequently Asked Questions

Can my child access the money in a custodial CD before it matures?

Not without your permission as custodian. The bank will not release the money to your child until the CD matures or you authorize an early withdrawal. If you do authorize an early withdrawal, the bank will charge a penalty, usually equal to a few months of interest. Once your child reaches the age of majority, they can withdraw the money whenever they want, even if the CD has not matured yet.

What if I need the money before the CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty varies by bank and CD term—it might be three months of interest, six months of interest, or a flat fee. Calculate whether the penalty is worth it before you withdraw. Sometimes it makes more sense to leave the money alone and borrow elsewhere if you need cash.

Can I open multiple CDs for my child?

Yes. You can open as many CDs as you want in your child's name. Some parents open several CDs with different maturity dates so that money becomes available at different times. This is called a CD ladder. For example, you might open one CD that matures in one year, another in two years, and another in three years. As each one matures, you can decide whether to renew it or use the money.

Does a custodial CD affect my child's financial aid for college?

Yes, it can. Money in a custodial account is considered your child's asset on the Free Application for Federal Student Aid (FAFSA), and assets reduce the amount of aid your child may receive. The impact depends on how much is in the account and your family's overall financial situation. If college financial aid is a concern, talk to a financial aid advisor before opening a large custodial CD.

What happens if the bank fails?

If the bank is FDIC-insured, your money is protected up to $250,000 per account. A custodial CD is considered a separate account from your personal accounts, so the $250,000 limit applies to the CD alone. If you have $100,000 in a custodial CD and the bank fails, you will get all of it back. If you have $300,000, you will get $250,000 and lose the rest. This is why it is important to confirm that your bank is FDIC-insured.