Using Certificates of Deposit to Plan for a Child's Future?

Answer 1

While education-specific savings products are great when you're expecting, there are also a plethora of other future benchmarks for which to plan. Launching a young person into adult life with a house down payment, a security deposit for an apartment, or a reliable car to commute to their first job are all goals that conscientious parents can't overlook. Using certificates of deposit to set aside money for these future expenditures is a savvy financial move. Interest rates, terms, and avoiding escheatment are all important factors.

Interest Rate Shopping

In order to get the best return on your money, you'll want to look for the highest interest rates possible. Use the internet to shop around. You may also want to approach the financial institution where you do most of your banking. Many companies offer a higher interest rate if they also hold your checking, savings, mortgage, or home equity accounts.

The Terms

Certificates of deposit are sold in specify time increments ranging from a low of one week to ten years or more. Usually, agreeing to a longer term will net you a higher interest rate. You will have to consider whether or not you believe rates will rise or fall in the future and make your plans accordingly. You wouldn't want to be locked into a ten-year certificate only to watch rates rise. Furthermore, you will want to choose a term length that fits your future needs. If you want to set aside funds for a car at high school graduation for a newborn, a twenty-year certificate of deposit will not help.

Avoiding Escheatment

Escheatment occurs when you leave money sitting in the bank so long that it is considered abandoned and is turned over to the state. To avoid this, create a careful record of where your funds are kept and keep in contact with them. Each state has its own length of time used for escheatment, so be sure to check on your specific state for more details.

By planning ahead for major expenses, your child's financial future will be more secure. Using certificates of deposit to meet your goals works well as long as you pay close attention to the interest rates, the terms, and are sure that your accounts are not escheated.