Yes, grandparents can open a bank account for a grandchild, but the account structure depends on the child's age and your relationship to them

Grandparents can open a bank account in a grandchild's name, but you cannot do it alone. If the grandchild is a minor, you will need a parent or legal guardian to sign the account paperwork alongside you. If you are the legal guardian, you can open the account yourself. Banks treat this differently than opening an account for yourself because the child has legal rights to the money, even if you funded it.

The most common structure is a custodial account, where you (the grandparent) are the custodian and the child is the account owner. You control the money while the child is under 18 or 21, depending on your state and the account type. When the child reaches that age, the account transfers to their full control. This is different from putting money in an account you own and naming the child as a beneficiary—that would be your account, not theirs.

A second option is a Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account, which are specific types of custodial accounts that exist in most states. These have tax advantages for smaller amounts of money and clearer rules about when control transfers to the child. Not all banks offer these, so you may need to ask.

Key Takeaways

  • A parent or legal guardian must sign the account paperwork with you unless you are the legal guardian yourself.
  • Custodial accounts let you control the money until the child reaches 18 or 21, then the account becomes theirs to control.
  • UTMA and UGMA accounts are custodial accounts with specific tax rules and are available in most states but not all banks.
  • You will need the child's Social Security number, a birth certificate or ID, and proof of your relationship to open the account.
  • Money in a custodial account counts as the child's asset if they later explore for financial aid, which can reduce aid amounts.

What documents you need to bring to the bank

Bring the child's Social Security number and a copy of their birth certificate or state ID. The bank will use the Social Security number to set up the account and report interest earned to the IRS. You will also need to show your own ID and proof of your relationship to the child—a birth certificate showing you as the grandparent, or a family document the bank accepts.

If a parent or guardian is signing with you, they will need their ID as well. Some banks ask for a phone number and address for the child, even though minors do not have their own address. Give the address where the child lives most of the time. A few banks ask whether the account is a gift or a loan, though this is not legally required—you can decline to answer or state it is a gift.

The difference between custodial accounts and accounts you own

If you open an account in your own name and name the child as a beneficiary, the money is legally yours until you die. The child has no rights to it while you are alive, and it will pass to them through your will or by default beneficiary rules. This is simpler to set up but gives you less control over how the money is used after you die, and it may create tax or legal complications if you become incapacitated.

A custodial account is legally the child's money from the start, held in trust by you. You can spend it only for the child's benefit—education, medical care, food, housing, and similar expenses. You cannot use it for your own needs. When the child reaches the age of majority in your state (usually 18 or 21), the account becomes theirs to control completely, and you have no say in how they spend it. This is the trade-off: the child gets the money sooner, but you lose control.

Custodial accounts also have tax advantages. The first portion of interest or investment gains earned each year is tax-free for the child, and the next portion is taxed at the child's rate (usually lower than yours). An account in your name would be taxed at your rate. However, if the account grows large, the tax advantage shrinks or disappears.

How custodial accounts work when the child turns 18 or 21

The age at which the account transfers to the child's control varies by state and account type. Most states use 18 for UGMA accounts and 21 for UTMA accounts, but some states allow you to choose an age between 18 and 25 when you open the account. Check with your bank about your state's rules before you open the account, because you cannot change this later.

When the child reaches that age, the account becomes theirs. You will no longer have access to it or control over how it is spent. The bank will send the child notice that the account is now in their name alone. If you want to delay when they get the money, a custodial account is not the right tool—you would need a trust set up by a lawyer, which costs more but gives you more control over timing and how the money is used.

Tax reporting and financial aid impact

Money in a custodial account is reported to the IRS under the child's Social Security number. Interest, dividends, and investment gains are taxed each year. The first $1,250 of unearned income (interest, dividends) is usually tax-free for a dependent child in 2024, but this amount changes yearly. Anything above that is taxed at the child's rate. If the account earns more than $1,250 per year, you will receive a Form 1099 and will need to report it on the child's tax return.

Custodial accounts count as the child's asset when they explore for federal student financial aid. Schools use the Free process for Federal Student Aid (FAFSA) to calculate aid, and assets in the child's name reduce the aid amount they receive. A child with $10,000 in a custodial account may receive less aid than a child with no assets. If you are saving for college, this is a real cost to consider. Some families choose to keep college savings in the grandparent's name instead to avoid this penalty, accepting the tax disadvantage in exchange for higher aid.

What happens if you die before the child reaches the age of majority

If you die while you are the custodian, the account does not go through probate—it belongs to the child and passes to them directly. However, if the child is still a minor, the court may appoint a new custodian to manage the account until the child reaches the age of majority. You can name a successor custodian in your will to avoid this, and the bank can tell you how to do it when you open the account.

If you do not name a successor and the court appoints one, that person has the same duties you did: they can spend the money only for the child's benefit. The account still transfers to the child at the age you chose when you opened it. If you want more control over what happens to the money after you die, or if you want it to stay in trust longer than the age of majority, you need a trust document prepared by a lawyer.

Frequently Asked Questions

Can I open a custodial account without the parent's permission?

No. If the child's parent is alive and has custody, they must sign the account paperwork with you. If you are the legal guardian or the parent has died, you can open it alone. A bank will not open a custodial account for a minor without a parent or guardian's signature.

What if I want the grandchild to get the money after I die, but not until they are 25?

A custodial account will not work because the child gets control at 18 or 21 depending on your state. You would need a trust set up by a lawyer, which costs several hundred dollars but lets you set any age you want and add other conditions, like requiring the money to be used for education.

Does money in a custodial account count against my assets if I need Medicaid?

No. Because the account is legally the child's, not yours, it does not count as your asset for Medicaid purposes. However, if you are the custodian and you die, the account passes to the child and does not go toward paying your medical bills or debts.

Can the child's parent take money out of the custodial account?

Only if you give them permission or if you name them as a joint owner. As the custodian, you control who can access the account. If the parent is not listed as a custodian or joint owner, they cannot withdraw money without your approval.

What is the difference between a custodial account and a savings bond?

A savings bond is a single investment you buy in the child's name; a custodial account is an ongoing account where you can deposit money repeatedly. Bonds have fixed terms and interest rates. Custodial accounts let you add money whenever you want and choose how it is invested. Both pass to the child at a certain age, but bonds may have different tax rules.