A Certificate of Deposit Gift: Money + Savings Lessons = One Great Idea

If you’re in the market for a unique present that can teach important financial lessons, have you considered a certificate of deposit gift or U.S. savings bond?

Both are relatively lower-risk investments that provide an opportunity for kids to watch their money grow over time through the power of compound interest, where even the interest earns interest.

These gifts can also be launching pads for conversations about the importance of saving or having a rainy day fund. And, since both have penalties for withdrawing money early, there are lessons to be learned about waiting: Patience truly is a virtue with certificates of deposit, also known as CDs, and savings bonds.

Maturing Together

A CD is a type of savings account that generally guarantees a fixed rate of interest over a designated term that can be as short as a week or as long as several years. After a CD reaches its term, its owner can withdraw the funds, renew the CD or move the money to a different CD. Many have a penalty for withdrawing money before the maturity date.

When researching CDs, consider the minimum deposit requirement, term and annual percentage yield (APY), which measures the actual interest earned per year and is helpful when comparing CDs of various interest rates and compounding frequencies. This CD calculator can help.

Make sure you have all needed information on hand before you head to the bank. You’ll likely need some personal information about the intended recipient, including their Social Security number.

The Different Available Choices

Savings bonds, which are U.S. Treasury securities backed by the government, are quite different financial products. They’re designed specifically as longer-term investments but can be purchased for as little as $25.

There are two kinds of savings bonds to choose from: Series EE bonds, which pay a fixed interest rate, and Series I Savings Bonds, which earn interest based on the combination of a fixed rate and an inflation rate. The Treasury sets rates each May and November.

EE bonds issued through October 31, 2017, earn an annual interest rate of 0.1 percent. They’re guaranteed to at least double in value in 20 years and earn interest for up to 30 years. Be sure to check on current interest rates when you buy your savings bond.

The composite rate for I bonds issued through October 31, 2017, is 1.96 percent, applicable for the first six months of bond ownership. The rate can change because a portion is tied to an inflation rate set every six months. These bonds also earn interest for up to 30 years.

Savings bonds are primarily sold through the TreasuryDirect website in electronic form, although you can buy paper I bonds with your IRS tax refund.

CDs and savings bonds are gifts that can help a young one in your life start to understand the importance of saving, investing and interest. Teaching financial lessons early can help set a child on the path toward a lifetime of financial wellness.

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