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I have researched some into Certificate of deposit and was wondering if this is a good approach. From this site http://www.bankrate.com/cd.aspx with the following criteria of Ca, Los Angeles and 5 year CD I got the follow: Institution: OneWest Bank, FSB APY: 1.50% Tue Jan 21 Rate: 1.49% Compounded daily Min Deposit: $1,000

I am really not sure if this is good or not.

My daughter is really young and pretty much want to put some saved up money for her when she turns 18 she can have it. Was wondering if this is something I should do or I should look else where. I simply want something with a good interest, risk-free and hassle-free.

Hoping someone could help me out.

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    The answer will depends somewhat on what you expect her to do with the money? College? First Home? Retirement? New Wheels on Sweet-16? – JohnFx Jan 21 '14 at 21:46
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    Read about UGMA (Uniform Gifts to Minors Act) accounts and 529 plans first. What you are thinking about will be called a UGMA account and the money in the account will belong to your daughter when she turns 18. When the CD you are looking into matures, you cannot reclaim the funds and put them into your personal account; the money belongs to your daughter (even if she is below 18) and the money must be kept in a UGMA account (with you as custodian) until she can use it. And, as JohnFx hints, if she wants to buy a motorcycle with it when she is 18, you cannot stop her; it is her money – Dilip Sarwate Jan 21 '14 at 21:54
  • This would hopefully would be towards college – zyeek Jan 22 '14 at 1:55
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    "This would hopefully would be towards college" Then learn about 529 plans. – Dilip Sarwate Jan 22 '14 at 3:44
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    An UGMA account would be considered a student asset in an Expected Family Contribution calculation for college costs. That means that it would be expected to be spent at a rate that would deplete it almost completely after four years. – stannius Feb 21 '14 at 18:51
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+50

For the requirement for risk free and hassle free account a CD or money market account through your local bank, credit union, or even large online bank will be fine. These funds won't grow very fast over time but they are safe and insured. These types of accounts are perfect for all the miscellaneous birthday, Holiday and religious event checks.

There is not a requirement that the money be in a UGMA (Uniform Gifts to Minors Act) account. Putting it in a UGMA account does make it hard for the parents to spend. The IRS does allow the child to have earnings from banks without the formality of a UGMA. The money shouldn't be moved between the parent's and child's account but it is possible for the parents to spend the child's money if times are tight and the money is used for items that benefit the child.

If there is a reasonable assumption of college then the 529 plan makes a lot of sense. The prepaid tuition options would be risky because they tend to be tied to a single state, and who knows where they will be living in 10 to 15 years.

The 529 does focus the money to be used for educational expenses, but it can be used for non-educational expenses if you are willing to pay the taxes and penalties. It can also be transferred to another child later, or even other family members. In my state the 529 plan doesn't have to be used right after high school graduation. It can be used up to 30 years after graduation. So they can decide a few years later that they want to go back to school.

  • Good answer, but curious, a 10-15 year timeframe is still short term? My state's 529 allows an S&P fund and that's what the money is in. College is 4 years away, thinking it may be time to shift to cash. – JoeTaxpayer Feb 22 '14 at 1:03
  • For my state the money for a newborn is 80% equity/20% fixed; for a 5 year old it is 70% equity; for a 10 year old it is 50% equity; for a 16 year old 25% equity; for 18+ it is 0% equity/100 % fixed. Or you can pick a fund that doesn't evolve based on age. – mhoran_psprep Feb 22 '14 at 1:11

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