With the holidays approaching, now is a good time for parents and grandparents to think about low-risk, long-term account options they can gift their children, grandchildren, nieces, nephews and other loved ones.
What makes these financial gifts perfect for children or teenagers is that most of these mature for future use. These forward-looking investments can be much more rewarding than general toys, objects, or traditional gifts, as they can have a lasting, helpful impact when the children and teenagers grow up.
Let's take a look at a few stable financial vehicles that make great holiday gifts.
A traditional savings account provides a smart and safe way to help the recipient learn basic financial literacy skills. With even a small amount in the account, the child or teenager can watch interest accrue, calculate a future growth trajectory, balance the account if money is spent and, ideally, continue contributing more funds to it.
Savings accounts come in a variety of categories, each with their own interest rates and benefits. One particularly good savings plan for children and teenagers is a 529 College Savings Plan or a Qualified Tuition Program. These types of accounts can help pay for higher education costs down the road and offer tax advantages.
A Certificate of Deposit, known as CD, is another stable option for a holiday gift. With a set annual percentage yield (APY) over the lifetime of the certificate, a CD offers risk-free returns with no effort.
CDs come with varying term lengths, with longer terms typically accruing more interest. When a CD matures, the recipient can then either withdraw the money, renew the certificate or add more funds to the account. This gives the recipients more flexibility on how they want to use it in the future.
Savings bonds are easily purchasable, have little to no risk and can provide decent returns. These are backed by the federal government, so savings bonds are considered one of the safest long-term investments. Bonds cannot be redeemed for the first 12 months. After that, the bond holder can cash it early, but they receive a slight penalty on the return. This penalty can serve as a smart incentive to teach younger children the importance of saving.
Some bonds, such as Series EE I savings bonds, can take up to 30 years to mature, all the while earning interest. These make for an excellent choice for long-term help down the road.
A money market account gives the recipient the chance to earn higher interest rates when investing higher balances. While there is a higher threshold for the minimum amount to open an account, a money market account, on average, tends to generate more interest than traditional savings accounts. This makes a money market account a good choice for new parents, college students or as a wedding present.
These are just a few of the stable, low-risk financial instruments to choose from that make great gifts for children, teenagers or any friends and family.
Want to know more about this great holiday gift? Reach out to The Federal Savings Bank today to learn more.