Start Saving: Why CDs are Perfect for Kids
Financial management is a discipline that must be honed over time. Shrewd parents interested in giving their kids a leg up in this area should consider using Certificates of Deposit (CDs). Unlike riskier investment strategies, CDs may be the ideal option for helping children understand the basics of spending and saving.
Why choose CDs?
CDs offer several distinct advantages over other types of savings accounts, particularly for children:
Fixed Interest: Although variable interest rates can be an option, most CDs operate with fixed interest rates, letting you predict the growth of the balance as your child ages. Plus, CD growth is typically faster than most savings accounts.
Security: CDs are insured by the NCUA and are considered one of the safest and lowest-risk investment options on the market.
Maturity: A commonly cited drawback of CDs is that money can be withdrawn only during certain time frames, lest you face a withdrawal penalty. While this can be frustrating for adults, it’s perfect for children. This regulation ensures that older children won’t argue about having access to their funds, and it teaches kids valuable lessons about the benefits of waiting for investments to mature before cashing in.
CDs aren’t as profitable as other investment strategies and are much slower to pay off. However, these features are what make them perfect for kids. While adults may blanch at the slow growth of CDs, children will have years of growing to do before worrying about cashing in their accounts. This gives parents plenty of time to teach kids the basics of money management before actual dollars come into play. For adults looking to give children a bit more responsibility, you can’t beat a CD.
Photo Credit: Bigstockphoto.com user szefei