It's simply never too early or too late to start saving for your child’s future, and because the reasons to save are many, any little bit will likely help. But what is the best method of growing savings for your child?
One way to save for the future is a certificate of deposit (CD). CDs are time deposits. When you open a CD, you agree that you will not withdraw the funds until the maturity date, which varies from a few months to several years after you open the account, depending on the term you choose. You can close a CD before the term ends, but you typically will pay an early withdrawal penalty for doing so.
Opening a certificate of deposit for your child is a great way to save for the following reasons:
- They’re convenient.
There is no need for you to visit a bank in person to open a CD account. For example, with Ally Bank, you can open a CD and name your child as the beneficiary from the privacy of your home. (Opening your account online also gives you a chance to research which banks offer the best rates. Online banks like Ally Bank generally offer higher interest rates than traditional banks according to Bankrate.com, and we help make managing your cash hassle-free.)
- Your money grows automatically.
You don't have to monitor the progress of your CD on a daily basis (if you don't want to). Leave your money deposited and it will grow according to the terms of the CD you choose. Ally Bank compounds interest daily, so your balance grows even faster.
- CDs are predictable.
The terms of your deposit agreement will state how much your CD will earn. At maturity, you can either renew your certificate of deposit or withdraw your funds.
- CDs may offer higher interest rates than savings accounts.
As with any savings product, a higher interest rate means more earnings over time. Longer-term CDs generally offer higher interest rates than their short-term counterparts. And, since saving for your child's future can be done over the span of many years, a longer term may be just what you need.
Ally Bank, Member FDIC