How to buy a CD as a gift: a step by step guide
Insider experts pick the best products and services to help you make smart decisions with your money (that is how). In some cases, we receive a commission from our our matesHowever, our opinions are our own. Terms apply to offers listed on this page.
- You may purchase a CD as a gift for a minor, but you may not give a CD to another adult.
- You will need to open a UGMA or UTMA account and then add a CD.
- When choosing a CD, consider interest rates and early withdrawal penalties.
buy a record As a gift it can be a good choice for parents or close relatives who want to help teach children to save money for the future.
If you’re considering buying a CD as a gift, here’s everything you need to know about getting an account in someone else’s name.
Can you buy a CD as a gift for another adult?
No, you will not be able to buy a CD and give it to another adult. Financial institutions require personal information and documentation to establish account ownership. Adults have to open accounts in their own name.
You also cannot directly transfer ownership to someone else once an account is opened in your name. The most you can do is open a CD under joint account ownership.
How to buy a CD as a gift to a minor
While you can’t buy a CD as a gift for an adult, you can get a CD as a gift for a minor. Parents or close relatives can open an account on behalf of a child because minors cannot open a bank account on their own.
Here is a step-by-step guide you can follow to buy a CD as a gift for a child:
1. Find an institution that offers a custodial account.
A custodial bank account it is a type of investment account that a parent or guardian can open for their child. The parent or guardian will supervise the account until the child reaches a certain age, often known as the age of majority. Depending on the state in which she lives and her situation, the age of majority for a custodial bank account can be 18, 21 or 25 years.
There are two types of child custody accounts: UGMA and UTMA.
- MORNINGS enable you to consider a wide range of investment options, including stocks Y captivity.
- UTMA allows you to open the same accounts as UGMAs and transfer property or items, such as artwork.
You may find custody accounts at traditional banks and credit unions. Custody accounts can also be opened at brokerage firms.
2. Open a UGMA or UTMA account.
You will need the child’s personal information to open a custody account. The following documents and information may be required to open an account online or at a branch:
3. Add a CD to your custodial account.
You will then choose the CD you want to open. Rates and terms will vary depending on the financial institution. Minimum opening deposits for CDs they are generally around $1,000. However, you can open some CDs online with $0 up front.
When selecting a CD, you may want to review the institution’s policies on early withdrawal penalties. If money needs to be withdrawn before the CD reaches maturity, the bank will charge a fee.
As the person who oversees the custodial account until the child reaches the age of majority, you will be able to renew the CD or transfer the money to a new account after the term is up. However, she will not be able to withdraw the money for her personal use.
Is a CD a good gift?
Kevin Mahoney, PIC professional and host of financially wella finance podcast for millennials, says buying a CD as a gift could be a worthwhile option if you want to create an educational experience for your child and protect money from inflation strikes.
CD rates have increased significantly throughout 2022 because the Federal Reserve has raised the fed funds rate multiple times to combat inflation.
“If you had asked me a year ago, I’d probably say CDs aren’t worth it. But because rates have gone up, CDs are a decent investment right now,” adds Alvin Carlos, CFA, CFP, financial planner and CEO of Management of the district capital.
If your goal is primarily to generate money for your child’s future, there may be other options to explore that might be a better fit for your circumstances. For example, Mahoney says that a 529 plan either Roth IRA for children There are other accounts that might be more suitable.
Mahoney advises people to see if getting a custodial account and a CD makes sense in the context of overall family finances and where their money is.
“You don’t want to strain the family’s or parents’ finances by trying to do this,” says Mahoney. “At some point, it can make life a bit complicated and you may not keep track of it. You may lose account information more easily.”
Do you have to pay tax for a CD that is a gift?
you may have to pay gift taxbut it depends on how much money you have deposited in the CD.
“A gift tax for particularly wealthy families can come into play here. Or, if for whatever reason, you’re giving a large amount of money to other family members or others in the same amount of time you’re giving away the CD But for most people, it shouldn’t be a big concern,” Mahoney explains.
Gifts are not considered taxable if they are less than the annual exclusion amount. According to the IRSthe annual exclusion amount for gifts is $16,000 per person in 2022 and $17,000 per person in 2023.
If you deposited more than the annual exclusion amount into a CD that is a gift, you will need to complete a federal gift tax return and include it with your annual tax returns.
Reminder about CD expiration dates
If you’re managing a custodial account, Carlos recommends setting a reminder for the date the CD’s term will end.
Generally, banks grant a grace period for CDs. This is a short period of time after the maturity date, around seven to 10 days, when you can withdraw money from a CD without facing a penalty.
During the grace period, you can determine whether it would be better to renew the term or consider another option. Carlos suggests checking CD rates to see if you still have a competitive interest rate.
As the person overseeing the account on behalf of the minor, you can choose to select another CD term or move the money to another account within the custodial account once the CD reaches maturity. However, she will not be able to withdraw the money for her personal use.
If you want to withdraw money from a CD, you must contact the institution to transfer the money to a new account. Otherwise, it will automatically renew for the same term after the grace period ends.