How to Give a CD as a Gift

You can't give a CD to another adult, but you can give one to a child

You can’t give a certificate of deposit (CD) to another adult, because federal rules say that the owner of a bank account must be identified as it is opened. You can, however, open a CD for a child or young person, and have it pass into their name when they reach adulthood.

Giving a CD in this way can be a great gift. A CD is not just money, but is also an investment for the future and a potentially valuable lesson on the importance of financial discipline. In this article, we’ll explain how you can give a CD to a child.

Key takeaways

  • You can’t give a certificate of deposit (CD) to another adult, because federal law says that they have to present ID to open an account in their name. 
  • However, you can “give” a CD to a child or young person by setting up a UTMA or UGMA custodial account and adding a CD to it. 
  • When the young person reaches adulthood, they will get full ownership of all the assets in the account, including any CDs.

Can I Give a CD as a Gift?

You can’t give a certificate of deposit (CD) to anyone. That’s because CDs fall under the same federal laws that govern bank accounts, and those laws require all financial institutions to obtain, verify, and record information that identifies each person who opens an account. This law makes a lot of sense—otherwise, anyone could open an account in anyone else’s name—but it does prevent you from sending a monetary gift as a CD.

There is an important exception, however. The Uniform Transfers to Minors Act (UTMA) and the older Uniform Gift to Minors Act (UGMA) allow adults to set up custodial accounts on behalf of minors (that is, people aged under 18 or 21, depending on the state). While the young person is still a minor, any transactions on the account will have to be approved by you, the custodian. However, when they reach adulthood they automatically gain control of all the assets in the account.

“Giving” a young person a CD in this way can be a great gift. A CD is not just money, but will also generate returns in the future. And because of the term requirements on CDs, you may also be imparting a valuable lesson in financial discipline. CD gifts of this kind are popular for graduations—marking a young person’s entry into adulthood with an investment in their future. 

Because of the information you’ll need to gift a CD in this way—a young person’s address, social security number, and other details—this kind of gift is best suited to immediate family members. 

The adult who opens the account, typically a parent or legal guardian, has control over the account until the child reaches adulthood. At that point, the child becomes the legal owner of all the money in the account.

How to Give a CD as a Gift

The process of giving a CD to a young person in this way is fairly straightforward. Here are the steps:

  • First, find a bank or credit union that offers Uniform Transfers to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) accounts, and also good CD rates. The interest rates paid on CDs can vary widely, so make sure you do your research on behalf of your chosen recipient.
  • Setting up a UTMA or UGMA account is just like opening a regular bank account. You will need to provide the bank or credit union with your driver's license or passport as well as your social security number. With some providers, you can do this online, but with others, you may have to visit a branch.
  • Because this is a custodial account, you’ll also need to provide details of the child you are “giving” the CD to. The bank will need the name of the child, as well as the child's social security number, date of birth, and physical address. The intimacy of these details is why it’s rare for CDs to be given to children who aren’t your immediate relatives.
  • Next, you can deposit funds in the CD by check or electronic transfer.
  • The bank or credit union will then open the account as a custodial account, and list you as the custodian.
  • Review the time deposit agreement to ensure the interest rate and deposit amount are correct. Sign the deposit agreement as the authorized signer and ask for a copy of the agreement so you can keep it for your personal records.
  • You can then give the details of the account to the young person you are giving the CD to, along with a nice card.

The final step of the process is to wait. The money in the CD will automatically become the property of the young person as soon as they reach adulthood.

Can I Give a CD to an Adult?

Not directly. You can add another adult as a joint owner to an existing CD that you own, though. In that case, the second person will have the same rights as you when it comes to the CD.

Do I Pay Tax on a Gift CD?

It depends. The Internal Revenue Service assesses gift tax when you give money to someone else, whether this is as a CD or not. You as the donor have to pay this tax rather than the recipient of the gift. In some circumstances you can avoid paying this tax, such as if you gift money to your own child and the amount of the gift does not exceed the maximum allowable gift. 

How Do I Give a Child a CD?

Find a bank or credit union that offers UTMA or UGMA custodial accounts and a competitive CD. Then open a custodial account with yourself as the custodian and a young person as the owner. When they reach adulthood, they will automatically gain control of all the assets in the account, including the CD.

The Bottom Line

A certificate of deposit (CD) cannot be a gift to another adult, because federal law says that they have to present ID to open an account in their name. However, you can “give” a CD to a child or young person by setting up an UTMA or UGMA custodial account and adding a CD to it. When the young person reaches adulthood, they will get full ownership of all the assets in the account, including any CDs.

Article Sources

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  1. Federal Deposit Insurance Corporation. "FDIC Law, Regulations, Related Acts."

  2. Financial Industry Regulatory Authority. "Saving for College: UGMA and UTMA Custodial Accounts."

  3. Internal Revenue Service. "Frequently Asked Questions on Gift Taxes."