Yes, you can open a bank account for your grandchild, but the rules depend on their age and your relationship to them

If your grandchild is under 18, you can open a custodial account (also called a minor account) at most banks and credit unions. You become the custodian, meaning you manage the account until they reach the age of majority — usually 18 or 21, depending on your state and the account type. The account belongs to them legally; you are the adult who controls it on their behalf.

If your grandchild is 18 or older, they can open their own account without you. You can still gift them money or help them choose a bank, but you would not be a co-owner or custodian unless they specifically ask you to be.

The main decision you face is whether to open a custodial account in your name as custodian, or to open a joint account where you both have equal access. Each has different tax and control implications, which matter if you are saving a larger amount.

Key Takeaways

  • A custodial account is held in your grandchild's name with you as the adult custodian, and the account transfers to them automatically when they reach 18 or 21.
  • You will need your grandchild's Social Security number, birth date, and address to open the account, plus your own ID and proof of address.
  • Earnings on custodial accounts may trigger tax filing requirements; the first $1,300 of annual earnings (as of 2024) is typically tax-free for the minor, but amounts above that are taxed at the child's rate.
  • Most banks and credit unions offer custodial savings accounts with no or low minimum balances, making them accessible regardless of how much you plan to deposit.
  • You lose control of the account once your grandchild reaches the age of majority in your state, so plan accordingly if you want to set conditions on how they use the money.

What documents you need to open a custodial account

Bring your grandchild's Social Security number, date of birth, and current address. If they do not have a Social Security number yet, you can apply for one at your local Social Security office or online at ssa.gov before opening the account. The bank will not open the account without it.

You will also need your own government-issued photo ID (driver's license or passport) and proof of your current address, such as a utility bill or bank statement dated within the last 60 days. Some banks accept a lease or mortgage statement instead. Call the specific bank or credit union first to confirm what they accept, because requirements vary.

If you are not the parent or legal guardian, bring documentation showing your relationship — a birth certificate for your grandchild or a family record that names you as grandparent. Most banks do not require this, but some do, especially if the account will hold a large balance or if the parent has not consented in writing.

Custodial accounts versus joint accounts: which one to choose

A custodial account is registered in your grandchild's name with you listed as custodian. You control the money while they are a minor. When they turn 18 or 21 (depending on your state and whether you chose UGMA or UTMA), the account becomes theirs completely, and you have no further say in how they spend it. This is the standard choice for grandparents saving for a grandchild's future.

A joint account is owned by both of you equally. You both can withdraw money at any time, and either of you can close it. Joint accounts are simpler to set up and do not automatically transfer ownership, but they blur the line between your money and theirs. If you are sued or file for bankruptcy, creditors may be able to reach the joint account. Also, if your grandchild is old enough to understand the account, they may feel may have access to to withdraw the money whenever they want.

For most grandparents, a custodial account is the better choice because it keeps the money legally separate from your own finances and ensures it stays available for your grandchild's needs until they are an adult. The trade-off is that you lose control once they reach the age of majority.

Tax implications of custodial accounts

Money you deposit into a custodial account is a gift from you, not income to your grandchild, so there is no tax on the deposit itself. However, if the account earns interest or investment returns, those earnings may be taxable.

As of 2024, the first $1,300 of annual earnings on a custodial account is tax-free. Earnings between $1,300 and $2,600 are taxed at your grandchild's rate (usually 0% if they have no other income). Earnings above $2,600 are taxed at your rate (the "kiddie tax" rule). These thresholds change yearly, so check the IRS website or ask your tax preparer for the current year's limits.

If the account earns more than $600 in a year, your grandchild will need to file a tax return or you will need to file one on their behalf. This is rare in a savings account earning 4% to 5%, but it happens quickly in investment accounts. Keep records of all deposits and earnings so you can report them accurately.

Where to open a custodial account

Most banks and credit unions offer custodial savings accounts. Call ahead or visit their website to confirm they offer them, because not all branches do. You can also open one online at many institutions, though some require you to visit a branch in person to verify your identity.

Compare interest rates across a few options. Custodial high-yield savings accounts at online banks often pay 4% to 5% annual interest, while traditional brick-and-mortar banks may pay 0.01% to 0.5%. Over time, that difference adds up. Popular options include Marcus, Ally, Capital One 360, and local credit unions, but rates change frequently — check current rates before deciding.

If you plan to invest the money rather than keep it in savings, you can open a custodial brokerage account or custodial investment account at firms like Fidelity, Vanguard, or Charles Schwab. These accounts allow you to buy stocks, bonds, or mutual funds on your grandchild's behalf. They have higher minimum balances and more complexity, so only choose this route if you are comfortable managing investments.

What happens when your grandchild turns 18 or 21

The account automatically transfers to your grandchild's full control on the date they reach the age of majority in your state. For most states, this is 18. A few states (like California, Kentucky, and Utah) use 21 for UTMA accounts. The bank will notify you and your grandchild before the transfer happens.

Once the transfer is complete, you can no longer withdraw money, deposit money, or make decisions about the account. Your grandchild can spend it however they want. If you have concerns about how they might use a large balance, talk to them about your intentions before they turn 18, but understand that you have no legal power to restrict their choices once they own the account.

If you want to set conditions on the money — such as requiring them to use it for college or a first home — a custodial account is not the right tool. You would need a trust, which requires a lawyer to set up. A custodial account is best for straightforward saving without conditions attached.

Frequently Asked Questions

Can I open a custodial account if I am not the parent?

Yes. Grandparents, aunts, uncles, and other relatives can open custodial accounts. The parent does not have to be involved, though it is courteous to tell them. The account is in the child's name, so the parent can also open their own custodial account for the same child if they choose.

What is the difference between UGMA and UTMA accounts?

Both are custodial account types. UGMA (Uniform Gifts to Minors Act) covers cash and securities. UTMA (Uniform Transfers to Minors Act) is broader and includes real estate, artwork, and other property. Most banks offer UTMA because it is more flexible. The age of transfer (18 or 21) depends on your state and which type you choose.

Can I withdraw money from a custodial account for my own use?

Legally, no. The money belongs to your grandchild, and you are only the custodian. Withdrawing money for yourself is considered a breach of your fiduciary duty and can have legal consequences. You can withdraw money only for expenses that directly benefit your grandchild, such as medical bills, education, or living costs.

Does a custodial account affect my grandchild's financial aid for college?

Yes. Custodial accounts are counted as the student's asset on the Free Application for Federal Student Aid (FAFSA), which can reduce the amount of aid they receive. Assets in a parent's name are weighted less heavily than assets in the student's name. If college financial aid is a major concern, discuss the timing and structure of savings with a financial planner before opening the account.

Can I change the custodian if I become unable to manage the account?

This depends on your state and the bank's rules. Some states allow you to name a successor custodian in writing, while others do not. Contact the bank or your state's laws to find out. If you do not name a successor and become incapacitated, the account may be frozen until a court appoints a new custodian, which can take time and money.