Is a traditional savings account or a Certificate of Deposit (CD) a better option for a long-term savings account for my young child?

I want to start a long-term savings account for my child. Is a traditional savings account or a Certificate of Deposit a better option? I do not plan on making any withdrawals and will be contributing about $200 per month.

Banking, Financial Planning, Starting Out
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6 days ago

Neither option pays any kind of return that you could notice without a magnifying glass.  Both pay interest at less than the inflation rate.  Don't hide your money in a zero-return vehicle like a CD or bank account.  Invest it instead.

If you are saving for college, put the money into a 529 plan.  The returns aren't that great but they are better than a CD and income is not taxed.  (You say "young child" so I will assume that there is 15 years until he/she goes to college.)  At $200 a month you might be able to accumulate enough for one year of college after 15 years, but that's certainly better than nothing.  Get started.  As time goes by and you have more spare cash, increase the monthly deposit.  You'll be glad you did.

If you have objectives other than tuition you can invest in a prudent mix of good-quality equities.  These will fluctuate in value but after 15 years you should expect a pretty nice annualized return.  Since you are starting small, an index fund would accomplish this.  (Look at the equal-weight S&P 500, for example.)  Good luck.

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