Under federal law, banks must identify account owners at account opening, which means that you cannot open an account such as a certificate of deposit and then give it to someone else. However, rules are different for minors and you can open an account with gift funds for a child under the Uniform Gifts to Minors Act. In most states, people under the age of 18 are designated as minors and cannot sign legal contracts such as CD agreements. You can, though, open an account on behalf of a child and make a gift deposit to fund the CD.
Contact several local banks and any credit unions that you are eligible to join and find out which financial institution has the best CD rates. Since you are opening the account for a child, ask about long-term rates as well as the more commonly advertised short-term rates. Make sure you have sufficient funds to meet the minimum deposit requirement and then call the bank that has the highest rate and set a new account appointment.
Go to the financial institution for your new account appointment. Give the banker your drivers license or passport as well as your Social Security number and a check containing the initial deposit made payable to the child you are giving the money to. Provide the banker with the name of the child, as well as the child's Social Security number, date of birth and physical address.
Instruct the banker to open the account as a minor account under the UGMA and to list you as the account custodian. Review the time deposit agreement to ensure the interest rate and deposit amount are correct. Sign the deposit agreement as the authorized signer and ask for a copy of the agreement so you can keep it for your personal records.
Tips & Warnings
- You cannot gift a CD directly to an adult, but you can add someone to your own CD as a joint owner, in which case that person has equal rights to the funds in the account. You can also name someone as a pay-on-death beneficiary on your CD. When you die, the POD beneficiary can close the account and take possession of the account proceeds without having to go through probate. Adding a joint owner of POD beneficiary also causes your deposit insurance to double from the standard amount of $250,000 per account owner, per bank. Alternatively, you can just write someone a check and tell her to open her own CD.
- The Internal Revenue Service assesses gift tax when you give money to someone else. You as the donor have to pay this tax rather than the recipient of the gift. In some circumstances you can avoid paying this tax, such as if you gift money to your own child and the amount of the gift does not exceed the maximum allowable gift. The IRS reviews the exclusions for gift taxes on an annual basis, so consult a tax professional before buying the CD.
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