When you’re setting money aside for a grandchild, it’s tempting to lean on bank CDs or high-yield savings accounts. After all, the yields on those are tempting right now. But over a multi-decade horizon, a custodial investment account (such as a UTMA) often offers much greater growth potential. Below, we’ll walk through why that is – and how a UNest UTMA can be a powerful tool for legacy investing.
The appeal – and limits – of CDs and savings
What CDs/savings give you
- CD (Certificate of Deposit) and high-yield savings accounts offer guaranteed returns (as long as the bank doesn’t fail), unlike equities. Investopedia, 2024-08-10
- Many are FDIC-insured (or similarly insured) up to regulatory limits, so your principal is protected. Wikipedia, 2024-07-15
- With rising interest rates, some CD rates are quite attractive, and savings accounts are offering more than they used to. Kiplinger, 2025-09-20
- For short or medium time horizons, locking in a fixed rate may beat many other “safe” alternatives. Bankrate, 2025-09-30
The constraints standing in the way
- Real (inflation-adjusted) returns can be weak or negative. Over the last 20 years, 12-month CD returns often provided negative real returns after inflation and taxes. Hartford Funds, 2024-09-05
- Opportunity cost. While money is locked in a CD, you lose flexibility to shift into better opportunities.
- Historically lower returns. Stocks outperformed a 6-month CD in 438 months between 1967 and 2017, while the CD outperformed in only 186 months. MagnifyMoney, 2024-08-22
- Tax impacts. Interest income from CDs is typically taxable, reducing the effective return.
- Time horizon. CDs and bank accounts work best for short- to medium-term goals, not long-term compounding.
Why a UTMA (custodial investment account) often comes out ahead
A UTMA (Uniform Transfers to Minors Act) account lets you invest for a child’s future using a mix of assets – like stocks, bonds, and ETFs. The funds belong to the child but are managed by an adult custodian until they reach their state’s age of majority (often 18 or 21). Over long periods, this structure provides flexibility and growth potential that fixed-income products lack.
- Equity risk premium: Over time, equities tend to outperform fixed-rate investments, though returns are not guaranteed.
- Compounding growth: Gains reinvested grow exponentially – the longer the horizon, the greater the effect.
- Flexibility: No fixed terms; you can rebalance or shift allocations as needed.
- Diversification: Mix of stocks, bonds, and other assets balances growth and risk.
- Inflation mitigation: Growth assets are more likely to outpace inflation over decades.
Yes, there’s market risk. Prices fluctuate, and some years will be negative. Conservative investors can choose more balanced portfolios – like 60% bonds and 40% equities – to dampen volatility while maintaining growth potential.
Illustrative return scenarios
(These are educational examples, not guarantees. Actual returns vary.)
- CD / Bank deposit: 20 years at 4% → about $21,900
- Balanced UTMA (equity + bond mix): 20 years at 6.5% → about $34,700
- Growth-oriented UTMA: 20 years at 8% → about $46,600
Even modest differences in return rates – 4% vs. 8% – compound into major gaps over time.
How to structure a conservative-growth UTMA
- Use a diversified portfolio (e.g., 50–70 % equities, rest in bonds).
- Favor dividend-paying, low-volatility funds.
- Rebalance periodically to maintain your target allocation.
- Contribute regularly (dollar-cost averaging).
- Keep 20–30 % in safer assets for stability.
This approach cushions downturns while capturing steady growth.
Why right now might be a sweet spot
CD and savings yields are unusually high, which tempts many savers. But locking in fixed rates could limit future upside if markets rebound. Over 15–20 years, missed compounding can far outweigh short-term yield advantages – especially for funds meant to benefit a child or grandchild.
That’s why many families use a combination approach: CDs for short-term needs, and a UNest UTMA for long-term goals.
How UNest helps
With a UNest UTMA, you can:
- Invest in a flexible, tax-advantaged custodial account for a minor.
- Automate weekly or monthly contributions.
- Choose from diversified portfolios aligned with your comfort level.
- Track progress toward meaningful milestones.
Open a UNest UTMA and start contributing – even $25 a month can grow into something powerful over time.
Key reminders
- Past performance doesn’t guarantee future results.
- Equity investments can lose value; CDs offer stability but limited growth.
- Inflation, taxes, and fees impact all returns.
- Align strategy with your time horizon and risk tolerance.
Wrap-up
The safest choice today – a high-yield CD – can look smart in the short term. But over decades, the magic of compounding and growth assets usually wins the race. A balanced custodial account, like a UNest UTMA, may help your grandchild’s future flourish far beyond what a CD can deliver.
