How to Buy Investment CDs for a Child

Certificates of deposit, or CDs, are a good way for kids to start saving because there's very little risk involved. From the beginning, they know what they've put in, what they'll get back and how long the cash must stay at the bank. Help your child make wise choices and get him excited about saving.

Difficulty: Easy

Instructions

1. Know the amount invested. There is usually a minimum amount you must purchase when buying an investment CD. This amount can be as high as $1000.

2. Understand the interest rate. You will be quoted a set rate of interest or an Annual Percentage Rate (APR). The APR will be higher than the rate of interest, so clarify beforehand which rate will be paid.

3. Be acquainted with the term. CDs are sold in set terms and you must leave your money in the bank for that amount of time. Typically, they are sold in three, six, and nine month varieties as well as one and five year.

4. Buy the CD from a reputable source. Investment CDs are sold through banks but find one with a good history. The bank should be FDIC insured for your protection.

Tips & Warnings

• Before you buy an investment CD, buy a clear bank for her room, preferably one with categories. Mark one area "Savings" and help her determine how much of her allowance to save. These small actions will help her become a saver as she grows up.
• If the stated terms of the investment CD don't work for your child, ask about other options. Some banks will let you set your own terms, so don't hesitate to find out if that's an option. Remember CDs with longer terms usually pay higher interest rates.
• The interest rate on CDs is notoriously small. Your child will likely earn a rate just above the rate of inflation so don't expect him to get rich with this investment. The goal at this point is to get him excited about saving and investing.