Certificate of Deposit Beneficiary

With a beneficiary, your CD transfers outside of probate.

With a beneficiary, your CD transfers outside of probate.

A certificate of deposit account is a special type of savings account that requires you to promise to leave the money at your bank for a set period of time. Your CD account is yours, but if something happens to you, you can designate someone else to get the CD account if you die. That person is called a beneficiary.

CD Benefits

A certificate of deposit account typically offers higher rates of interest than a regular savings account. It does this because you agree to leave your money in the bank for a set period of time, giving up the liquidity of a regular savings or money market account or a checking account. For example, as of the week of February 20, 2014, the average one-year CD yielded 0.23 percent while the average five-year CD yielded 0.8 percent. For comparison, the average money market account yielded 0.11 percent.

Naming a Beneficiary

When you have a CD, you may be able to name a beneficiary that automatically gets the account when you die. To do this, you will need to ask your bank if it offers a "payable on death" option. If it does, you will usually have to give the bank basic information on your beneficiary like her legal name, Social Security number and where to contact her if she is entitled to inherit your CD. You might not be able to add a beneficiary while your CD is in the middle of its term.

POD vs. Joint

Another way to let someone take over your CD automatically when you die is to have a joint account with rights of survivorship. However, a joint account means the person owns the account with you when you're alive. That person shares responsibility for paying taxes on any interest the CD pays, and that person can access the money at any time. When you add a beneficiary with a payable on death CD, the beneficiary has essentially no rights to it until you die.

Avoiding Probate

The key benefit of setting up a beneficiary for your CD is that it lets the account avoid probate. Normally, when you die, your assets have to go through a process, called probate, where a court oversees their distribution. Probate can be time-consuming and expensive. Setting up a beneficiary lets your account go right to the person you designate when you die without it having to pass through probate, saving time and money.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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