Opening a Bank Account for Your Grandchildren: What You Can and Cannot Do

Yes, you can open a bank account for a grandchild, but the rules depend on their age and what type of account you choose

You can open a savings account in your grandchild's name at most banks and credit unions, even if they are very young. However, the account structure changes based on whether your grandchild is a minor or an adult, and whether you want to manage the money yourself or give them control later. A parent or legal guardian must typically sign the paperwork alongside you, and you will need the child's Social Security number.

The most common route is a custodial account (also called a Uniform Transfers to Minors Act account, or UTMA account in some states). You open it in the child's name, but you control it until they reach the age of majority — usually 18 or 21, depending on your state and the account type. At that age, the account automatically transfers to them. This is different from opening an account in your own name and simply putting money aside for them, because the money legally belongs to the child from the start.

Key Takeaways

A custodial account lets you open a savings account in your grandchild's name while you control the money until they reach 18 or 21, depending on your state.
You will need the child's Social Security number, and a parent or legal guardian must sign the paperwork with you.
Money in a custodial account belongs to the child for tax purposes, which can affect financial aid and tax liability.
Once your grandchild reaches the age of majority, the account becomes theirs to control, and you cannot withdraw money without their permission.
If you want to keep control of the money yourself, you can open a regular savings account in your own name instead, though this has different legal and tax consequences.

How a custodial account works and who controls the money

When you open a custodial account, you become the custodian. This means you manage the account, make deposits and withdrawals, and decide how the money is invested (within limits set by law). The account is registered in the child's name with you listed as custodian — for example, "John Smith, as custodian for Sarah Smith." The child's Social Security number is used for the account, not yours.

You can withdraw money from the account at any time while you are the custodian, but the law requires that you use it for the child's benefit. This includes education, medical care, housing, food, and other necessities. You cannot use custodial account money to pay for things you would normally pay for anyway (like your own living expenses), and you cannot use it to replace child support or parental obligations. If you withdraw money for something that does not benefit the child, you may owe taxes on it.

When your grandchild reaches the age of majority in your state — 18 in most places, 21 in a few — the account automatically becomes theirs. You lose the right to manage it or withdraw money. They can then use the funds however they wish, with no restrictions. This is a significant change, so it is worth discussing with your grandchild and their parents before the transition date arrives.

Tax consequences of a custodial account

Money in a custodial account belongs to the child for tax purposes, which means your grandchild may owe income tax on interest or investment earnings. For 2024, the first portion of unearned income (interest, dividends) is typically not taxed, but amounts above that threshold are taxed at the child's rate, which is usually lower than yours. However, if the child is under 18 and has significant investment income, some of that income may be taxed at your rate instead — a rule called the "kiddie tax."

Custodial accounts can also affect your grandchild's financial aid if they later attend college. Money held in the child's name counts as their asset on the Free Application for Federal Student Aid (FAFSA), and assets in a student's name reduce their aid may be able to access more sharply than parental assets do. If you are saving for college, this is an important trade-off to understand before you open the account.

What you need to open a custodial account

Most banks and credit unions offer custodial accounts. You will need to bring or provide the following:

Your grandchild's Social Security number
Proof of the child's identity (birth certificate is typical)
Your own identification and Social Security number
Proof of your relationship to the child (birth certificate showing parents' names, or a custody document if applicable)
A parent or legal guardian's signature on the account paperwork

Some banks allow you to open a custodial account online, but most require at least one in-person visit or a notarized signature from the parent or guardian. Call the bank or credit union ahead of time to ask what documents they need and whether you can start the process online or by mail.

The account itself works like a regular savings account. You can set up automatic deposits, link it to your own account for transfers, and move money in and out as needed. Many custodial accounts earn interest, though rates vary by institution. Some banks offer slightly higher rates on custodial accounts, but this is not standard.

Alternatives if you want to keep control of the money yourself

If you do not want the account to automatically transfer to your grandchild at 18 or 21, you have other options. You can open a regular savings account in your own name and simply set aside money for them — but this means the money is legally yours, not theirs. If you pass away, the account becomes part of your estate and may go through probate. Your grandchild has no automatic claim to it unless you name them in your will.

You can also name your grandchild as a beneficiary on a savings account or certificate of deposit (CD) in your name. This means the account passes directly to them when you die, without going through probate. However, while you are alive, you retain full control, and the money is taxed as your income, not theirs.

Another option is a 529 college savings plan, which is specifically designed for education expenses. You open it in your grandchild's name, but you remain the account owner and can change the beneficiary to another family member if needed. This gives you more control than a custodial account, though the money must be used for education or you may owe taxes and penalties on the earnings.

What happens when your grandchild turns 18 or 21

The exact age at which a custodial account transfers depends on your state and the type of account. Most states use 18 for UTMA accounts and 21 for UGMA (Uniform Gifts to Minors Act) accounts, but this varies. Check with your bank or your state's laws to confirm the age in your situation.

When the transfer date arrives, the bank will notify you and your grandchild. The account becomes theirs to control entirely. You cannot withdraw money, change the investment strategy, or close the account without their permission. If your grandchild is not ready to manage the money, you can discuss a plan with them — for example, they might agree to leave it invested or to use it for a specific goal — but you have no legal authority to enforce it.

Some grandparents discuss the transition in advance and help their grandchild understand how to manage the account. Others set up the account with the expectation that the child will use it for education or a major purchase. Having that conversation early prevents surprises later.

Frequently Asked Questions

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

Yes. Grandparents, aunts, uncles, and other relatives can open custodial accounts. A parent or legal guardian must still sign the paperwork, but you can be the custodian. If the child is in foster care or has a court-appointed guardian, that guardian can sign instead of a parent.

What if the child's parents do not want me to open an account for them?

A parent or legal guardian must sign the account paperwork, so you cannot open a custodial account without their consent. If you want to set aside money for the child anyway, you can open a regular savings account in your own name and name the child as a beneficiary, or use a 529 plan where you retain control.

Can I withdraw money from a custodial account to pay for my grandchild's sports or music lessons?

Yes. Lessons, sports fees, and extracurricular activities count as expenses that benefit the child. You can withdraw money for these purposes. The key is that the expense must genuinely benefit the child, not replace something you would pay for anyway.

What happens to the account if my grandchild dies before reaching the age of majority?

The account becomes part of the child's estate and is distributed according to their parents' will or state law. If there is no will, the money typically goes to the parents or other close relatives. This is rare, but it is worth understanding as part of the account structure.

Can I change the beneficiary of a custodial account to a different grandchild?

No. A custodial account is registered in a specific child's name and cannot be changed to another person. If you want to save for multiple grandchildren, you need to open a separate account for each one. A 529 plan, by contrast, allows you to change the beneficiary to another family member if circumstances change.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.