Using a Certificate of Deposit to Teach Your Children about Finances


Many experts believe it is important to start kids on the path to financial savviness as early as possible. One fantastic way to do that is by opening a certificate of deposit account for them.

A certificate of deposit (CD) not only teaches the basics of saving funds but also incorporates the basics of investing, making it an ideal teaching tool.A certificate of deposit (CD) not only teaches the basics of saving funds but also incorporates the basics of investing, making it an ideal teaching tool.

Built-In Incentives

A great way to encourage children to save money is to give them savings goals or incentives, and what better incentive is there than more money? A CD provides that at no cost to you as a parent.

Less Liquid

Regular savings and checking accounts are adequate building blocks for teaching your children all about finances, but CDs are even better because the money in them is less liquid, as you are typically penalized for early withdrawal before maturity. This aspect can really help you drive home the importance of saving, as well as the impact and range of fees.

High Interest Rates

CD interest rates tend to be higher than those for regular checking accounts, which gives the account more financial potential and gives you more potential for teaching the significance of interest rates.

Children’s CDs Have Even More Advantages

“One of the best ways to teach your child how to save money is by opening a kids’ CD account. Since these accounts are designed with kids in mind, they usually offer perks that can really benefit children in the long run,” says Stacey Bumpus of GoBankingRates.com.

In addition to higher interest rates, advantages can include less money down.

Still, even an adult-based CD will provide learning opportunities if children’s CDs are hard to come by.

“By taking this route, you have access to more term-length options, interest rates and perks,” Bumpus says. “To get started, you could open the account in your name [and] simply place your child’s money in it.”

Bringing attention to these principles that can be taught using CDs—and putting them into practice while your children are young—will give your children an even longer amount of time to benefit from CDs’ inherent opportunities.

 

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