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Why you should open a CD for your child now

It's important to instill good financial habits in your child at an early age.  Getty Images

As a parent, you want your child to have every advantage in life, including financial security. One way to provide that security is by teaching them the value of saving money. But savings don't need to be limited to the traditional savings account or piggy bank.

While it may not be the first thing that comes to mind, a certificate of deposit (CD) can be a great way to introduce your child to savings. It offers many of the same benefits savings accounts do, but with some extra perks that make it perfect for a first savings product.

Explore CD options here to start saving - and earning - more money for your child.

Why you should open a CD for your child now

Your child can benefit from a certificate deposit in several ways. Specifically:

They'll earn guaranteed returns

When you open a CD, you agree to leave your money in the account for a set period of time, known as the term, in exchange for a guaranteed interest rate. As long as you keep the money in the account for the whole term, it will earn this rate whether the stock market crashes, the economy enters a recession or any other adverse financial conditions occur.

See how much your child could earn by viewing today's CD rates here.

They'll enjoy a higher interest rate

Like savings accounts, CDs earn compound interest. This means any interest you earn is reinvested back into the account, earning interest on top of interest. Over time, this can significantly increase the value of your child's savings.

CDs earn higher interest rates than typical savings accounts — often even higher than high-yield accounts. The longer the CD's term, the higher the interest rate. Plus, if you open a CD when rates are high — as they are now — you'll lock that rate in for the entire term, regardless of whether rates drop in the future.

Their money will be safe

CDs are FDIC-insured up to $250,000 per account per bank (or NCUA-insured for the same amount for credit unions). This means if the institution fails, your child's money is safe. The only way you might "lose" money in a CD is if you withdraw funds before the term expires, in which case you'll incur penalty charges that will chip away at your balance.

And speaking of keeping their money safe, this penalty can help discourage you and your child from using their savings for anything other than its intended purpose. A piggy bank is easy to crack into, and you can withdraw money from a savings account at any time. A CD with an early withdrawal penalty forces you to think twice before touching earmarked funds.

Find the best CD for your child by comparing current rates online now.

They'll learn to save

It's important to instill good financial habits in your child at an early age. Putting a portion of their allowance or birthday money into a CD gives them firsthand experience with a real financial product and shows them how to manage their money responsibly. This is an essential life lesson that will stay with them for years to come.

The bottom line

Opening a CD for your child now can set them up for a lifetime of financial success. And it's easy to do.

Many banks offer custodial accounts, which are set up and administered by an adult until the child turns 18, at which point they take ownership. You can visit a branch in person or apply online by providing some basic information about you and your child. Be sure to involve your child in the process so they feel more invested and motivated to save.

With guaranteed returns, higher interest rates and low risk, a certificate of deposit can be a great way to get your child into the habit of saving. So why wait? Start exploring your options and give your child the gift of financial stability today.

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