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Charles Schwab

Family finances: How should I invest my son's gift money?

Years ago, parents used passbook savings accounts to teach their children about the magic of compound interest. But unless your goal is to teach your son what happens when the Fed lowers interest rates to zero, you'll want to find other ways to invest the money. First, though, you'll need to set up a custodial account under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). Brokerage firms and mutual fund companies can provide you with the forms you need. An adult must be appointed custodian, a role that you or your spouse can assume. Once your child reaches the age of majority, usually 18 or 21, he will get full control of the account. You...