Yes, you can open a CD for a minor, but the child cannot hold it alone. Banks open these as custodial accounts under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). The child is the legal owner of the money, and you serve as custodian with authority to choose the term, make deposits, and handle renewals until the child reaches the transfer age set by your state.
Who Owns the Money
A custodial CD is a standard certificate of deposit opened inside a UGMA or UTMA framework. The minor owns the funds from the moment they land in the account. You decide how the money is invested, but you do not own it.
This matters because deposits into a custodial account are irrevocable gifts. Once the money is in, you cannot take it back for your own use. The Social Security Administration’s policy guidance treats UTMA transfers as irrevocable transfers of legal title to the minor.1Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act For a cash CD, it makes no practical difference whether the account is UGMA or UTMA; either framework works the same way.
A custodial CD is also different from a joint CD. On a joint account, either party can withdraw, and neither party’s share is protected from the other. On a custodial CD, the child owns the balance and any withdrawal has to benefit the child.
What You Need to Open One
Banks will ask for identifying information on both of you. For the child, that means full legal name, date of birth, and Social Security number. The SSN is required so the bank can report the interest for federal tax purposes.2Internal Revenue Service. Dependents 9 For yourself, bring a government-issued photo ID and your current address so the bank can satisfy its Customer Identification Program obligations.3eCFR. 31 CFR 1020.220 – Customer Identification Program Requirements for Banks
Most banks let you open a custodial CD online, by phone, or at a branch. The steps are familiar if you have opened a CD before:
- Compare annual percentage yields and pick a term. Minimum opening deposits commonly run from $0 to $1,000, and longer terms generally pay higher rates in exchange for locking the money up longer.
- Complete the application with information for both yourself (as custodian) and the child (as owner).
- Fund the account by linking an external bank account or depositing a check.
- Write down the maturity date so you can decide in time whether to renew or move the money.
While you’re setting things up, it’s worth naming a successor custodian. If you die or become incapacitated before the child reaches the transfer age, a named successor can step in without a court proceeding; without one, someone usually has to petition a court, and the fees come out of the child’s balance.
How the Interest Is Taxed
Interest the CD earns is the child’s income, not yours, even though you control the account. How it is taxed depends on how much it earns in a year.
A dependent child with unearned income of $1,350 or less in a tax year generally owes no federal income tax on it and does not need to file a return.4Internal Revenue Service. Publication 501 (2025), Dependents, Standard Deduction, and Filing Information Most single custodial CDs will not throw off enough interest in a year to clear that line.
Above that, the so-called “kiddie tax” kicks in. Once the child’s total unearned income passes $2,700 in a year, the excess is taxed at your marginal rate rather than the child’s.5Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax) The tiers look like this:
- First $1,350: tax-free.
- Next $1,350 (up to $2,700): taxed at the child’s own rate.
- Above $2,700: taxed at your rate, reported on Form 8615 with the child’s return.6Office of the Law Revision Counsel. 26 U.S. Code 1 – Tax Imposed
The kiddie tax applies to children under 18, and to full-time students 18 or under 24 whose earned income doesn’t cover more than half their own support.6Office of the Law Revision Counsel. 26 U.S. Code 1 – Tax Imposed
If the child’s only income is from interest and dividends and totals less than $13,500, you can elect to report it on your own return with Form 8814 instead of filing a separate return for the child.7Internal Revenue Service. 2025 Instructions for Form 8814 – Parents’ Election To Report Child’s Interest and Dividends It’s simpler, but interest between $1,350 and $2,700 gets taxed at a flat 10% under that election, which can run higher than the child’s own rate would have. For small balances it almost always makes sense; for larger ones, run the numbers both ways.
What You Can and Can’t Spend It On
As custodian you are held to a prudent-person standard, meaning you manage the money the way a reasonable person would manage their own, with the child’s interests as the only focus. The SSA’s guidance is explicit that custodians have no right to use UTMA funds for their own support and maintenance.1Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act
Withdrawals have to benefit the child directly. Education costs, medical expenses, and enrichment activities qualify. What doesn’t qualify is using the money to cover expenses you are already legally obligated to provide as a parent, such as food, shelter, and clothing. Spending custodial funds on groceries or rent can be challenged as a breach of fiduciary duty, and you can be held personally liable.
Pulling money out early carries a second cost on top of that. Federal rules set a floor penalty of at least seven days’ simple interest if you withdraw within the first six days after deposit.8HelpWithMyBank.gov. What Are the Penalties for Withdrawing Money Early From a Certificate of Deposit (CD)? Beyond that, each bank sets its own early withdrawal penalty with no legal cap; a common schedule charges 90 days of interest on terms of a year or less and 180 days on longer terms. If you think you might need flexibility, a shorter term or a ladder of CDs with staggered maturities is safer than committing everything to one long term.
When the Child Takes Over
The child gains full, unrestricted control at the transfer age set by your state’s UGMA or UTMA statute. UGMA accounts commonly transfer at 18, UTMA accounts commonly at 21, and some states let the person opening the account specify an age as late as 25.9Finaid. Age of Majority and Trust Termination On that date, the bank converts the custodial account into an individual account in the child’s name. The money is theirs to use however they want, and you have no further say.
Before You Choose a Custodial CD
Two trade-offs deserve a careful look before you commit.
The first is college financial aid. A custodial CD is reported as the student’s asset on the FAFSA, and student assets are assessed at 20% in the Student Aid Index calculation. Parent-owned assets are assessed at 12% and only after an asset protection allowance that shelters part of the balance entirely.10Federal Student Aid. 2025-26 Student Aid Index (SAI) and Pell Grant Eligibility Guide In rough numbers, a $10,000 custodial CD cuts a child’s aid eligibility by about $2,000 a year.
The second is whether a 529 college savings plan would fit your goal better. A parent-owned 529 is reported as a parent asset for FAFSA and offers tax-free growth when used for qualified education expenses, but it restricts how the money can be spent. A custodial CD has no such restriction once the child reaches the transfer age; the funds can be used for anything the child decides. If college is the point, a 529 is usually the better tool. If you want the child to have money available for broader purposes at adulthood, the custodial CD does more.
FDIC Coverage
Because the child is the legal owner, a custodial CD is insured separately from any accounts you hold at the same bank. Standard FDIC coverage of $250,000 per depositor, per bank applies to the minor’s accounts in their own right.11FDIC. Your Insured Deposits For most families opening a single custodial CD, the entire balance will sit comfortably within the insured limit.