4 Smart Things To Do With Your Graduation Gift Money

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Put Your Grad Money To Work as a Gift to Your Future Self

If you’re a new high school or college graduate and are receiving gifts of cash and checks, now’s the perfect time to make your money work for you. Instead of spending it right away, consider one or more of these four smart strategies to grow your gift funds so you can achieve important life goals down the road.

Option 1: Keep Your Gift Money Accessible With a High-Yield Savings Account

Even if you choose to skip the other strategies, any graduate who plans to hold on to some gift money should open a high-yield savings account. Your regular bank may offer little to no interest, but today’s 20 best savings accounts pay 4.30% to 5.00% APY.

By stashing your gift money in a high-yield savings account, you can watch it grow—a gift your future self will appreciate—while maintaining the flexibility to withdraw it whenever you need it.

Just keep in mind that interest rates aren’t set in stone. Banks and credit unions can adjust rates at any time, often without notice. With the Federal Reserve expected to lower interest rates in 2025, savings account rates could drop as well.

Option 2: Extend Your Stellar Return With a Top CD

Since you never know when your current savings rate could drop, there’s another option that’s great if you don’t need your savings for a little while: a certificate of deposit (CD).

A CD is a type of bank or credit union account that involves an agreement between you and the institution: You agree to leave your money untouched until the CD’s maturity date—whether that’s in a few months or a few years—and the bank guarantees you a fixed interest rate for that duration.

This means that even if interest rates drop due to Federal Reserve changes, the rate on your CD stays the same. No future moves by the Fed can change your locked-in CD rate. And right now, the best nationwide CDs are offering 4.50% to 4.60% on terms ranging from a short 3 months to a 21-month certificate that promises its rate until early 2027.

The trade-off with a CD is that cashing it out before maturity comes with an early withdrawal penalty, which can vary from harsh to mild. So even though you’ve recently graduated from school, you’ll still want to do your homework to determine what the early withdrawal penalty is for any CD you’re considering.

Option 3: Invest Your Grad Money for Long-Term Growth

If you want to put some of your grad money to work for the long haul, consider investing it instead of simply saving it with a fixed interest rate. Stocks or ETFs in a brokerage account could potentially offer much higher returns. And you don’t need to be an expert—investing in a broad-based index fund that tracks the U.S. stock market is a simple, hands-off approach to get started.

Keep in mind that investing is for the long term. The stock market can fluctuate, and there’s no guarantee of short-term gains. But if you’re saving for goals like a wedding, a down payment on a home, or long-term financial milestones, a brokerage account could be a smart way to grow your money over 5 to 10 years. Plus, you can continue to add to your investment account over time, either when you have extra funds or through regular automated contributions.

Option 4: Grow Your Money Tax-Free for Decades With a Roth IRA

If you earn income this year from a job that reports wages to the IRS, you can contribute to a Roth IRA—a special investment account with tax-saving benefits that can help you build long-term wealth. In 2025, you can contribute up to $7,000, so long as you have at least that much in earned income. If you earned less, you can contribute up to the amount you made.

For younger individuals with lower incomes, a Roth IRA can be especially beneficial. That’s because Roth IRAs must be funded with post-tax money, but if you have a low income, you won’t actually pay much or any taxes. Meanwhile, money later withdrawn from a Roth IRA—as well as all of its growth over the years—will not be taxed. Put the two together and you could find yourself both contributing and withdrawing from a Roth completely tax-free.

Keep in mind that a Roth IRA is a retirement account, so there are restrictions on withdrawals. You can access your contributions at any time, but to withdraw earnings without tax or penalty, you need to be at least 59½ years old. However, if you’ve had the Roth IRA for at least five years, you can withdraw up to $10,000 of earnings penalty-free for a first-time home purchase.

One important thing to note: The Roth IRA contribution limit of $7,000 (or your earned income for the year, whichever is less) resets every year. If you don’t opt to contribute the full amount in the calendar year, you can’t carry it over to put in more the next year.

A Combo Strategy Can Be Smart

If you’re unsure how to use your graduation money but want to ensure some is saved for the future, consider combining strategies from above. For example, you could put part of your gift money into a high-yield savings account for easy access when needed, while allocating another portion to a longer-term option, such as a CD, brokerage account, or Roth IRA—turning your graduation money into a gift that keeps giving for years to come.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.

Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.