Yes, you can open a savings account for your grandchild, but the account structure depends on their age

You can open a savings account in your grandchild's name at any age, but the mechanics change depending on whether they are under 18 or older. For children under 18, you will open what is called a custodial account — the account belongs to the child, but you manage it as the custodian until they reach the age of majority (18 or 21, depending on your state and the account type). For grandchildren 18 and older, they can open their own account, though you can still contribute money to it if you choose.

The key difference is control: in a custodial account, you make all decisions about deposits, withdrawals, and how the money is used. Once your grandchild reaches the age set by your state's law, the account transfers to them completely, and you lose all authority over it. This is not a joint account where you both have access — it is legally their money from the start, held in trust.

Key Takeaways

  • A custodial savings account is held in your grandchild's name with you as custodian, giving you control until they reach 18 or 21 depending on your state and account type.
  • You will need your grandchild's Social Security number and birth certificate to open the account, even if they are an infant.
  • Money in a custodial account belongs to your grandchild for tax purposes, which can affect their financial aid may be able to access later.
  • Once your grandchild reaches the age of majority, the account becomes theirs to control, and you cannot withdraw money without their permission.
  • Some banks and credit unions offer custodial accounts with no minimum balance, while others require $25 to $100 to open.

What documents you need to open a custodial account

You will need your grandchild's Social Security number and birth certificate or certified copy. The bank will also ask for your own identification — a driver's license or passport — and your Social Security number, since you are the custodian. Some banks require proof of address, usually a recent utility bill or lease in your name.

If you do not have your grandchild's Social Security number yet, you can request one from the Social Security Administration. You will need the child's birth certificate, proof of citizenship (the birth certificate serves this purpose), and proof of your identity and relationship. The process takes about two weeks by mail or can be done in person at a local Social Security office.

Bring all documents in person to the bank or credit union where you want to open the account. Some institutions allow you to start the process online, but they will still require you to verify documents in person or by mail before the account becomes active.

How custodial accounts work until your grandchild turns 18

While you are the custodian, you can deposit money, withdraw money, and manage the account entirely on your own. Your grandchild does not need to be present for any transaction. You receive statements in your name, and you decide how the money is used — whether it stays invested for growth, earns interest in a savings account, or is spent on the child's needs.

The account is titled something like "John Smith, as custodian for Sarah Smith" or "Sarah Smith, under the Uniform Transfers to Minors Act." This title makes clear that the money belongs to Sarah, not to you. If you pass away before your grandchild reaches the age of majority, the account does not go through your estate — it transfers directly to your grandchild or to a successor custodian you named when you opened it.

You should name a successor custodian when you open the account. This person takes over if you die or become unable to manage the account. Without a successor named, the court may have to appoint one, which takes time and costs money.

What happens when your grandchild turns 18 or 21

The account automatically transfers to your grandchild's full control on the date set by your state's law. In most states, this is 18 for a custodial account under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). A few states allow you to choose 21 when you open the account. Once the transfer happens, you have no authority over the account — you cannot withdraw money, see the balance, or make decisions about how it is used.

Your grandchild will receive notice from the bank that the account is now theirs. They can then change the account type, withdraw all the money, or leave it as is. There is no requirement that they use the money for education, housing, or any particular purpose. If you want to may support the money is used for a specific goal like college, a custodial account is not the right tool — you would need a trust or a 529 education savings plan instead.

Tax implications of a custodial account

Money in a custodial account belongs to your grandchild for tax purposes, even though you control it. This means the interest or investment earnings are taxed at your grandchild's tax rate, which is usually lower than yours. For 2024, a child can earn up to a certain amount of unearned income (interest, dividends) before owing federal income tax — the exact threshold changes yearly, so check the IRS website for the current year.

When your grandchild turns 18 or 21 and the account transfers to them, they become responsible for reporting the income and paying any taxes owed. Make sure they understand this, especially if the account has grown significantly.

A custodial account can also affect financial aid if your grandchild attends college. The Free process for Federal Student Aid (FAFSA) counts assets in the student's name more heavily than assets in a parent's name. Money in a custodial account is counted as the student's asset, which can reduce the amount of need-based aid they receive. If education funding is your main goal, talk to a financial advisor about whether a 529 plan or other structure might work better.

Custodial accounts versus other ways to save for a grandchild

A custodial savings account is straightforward but not the only option. A 529 education savings plan offers tax advantages if the money will be used for college or other education costs, and it does not affect financial aid as heavily as a custodial account. A trust gives you more control over when and how the money is used after your grandchild turns 18 — you can require it to be used for education, a home down payment, or other goals. A Coverdell Education Savings Account is similar to a 529 but has lower contribution limits and more flexibility on what counts as an education expense.

If you straightforward want to give money as a gift with no strings attached and no special tax treatment, a custodial account is the simplest choice. If you want to may support the money is used for a specific purpose or released gradually rather than all at once, a trust or education savings plan may serve you better. Talk to a tax professional or financial advisor about which structure fits your goals.

Where to open a custodial account

Most banks and credit unions offer custodial savings accounts. Large national banks like Chase, Bank of America, and Wells Fargo have them, as do smaller regional banks and credit unions. Online banks like Ally, Marcus, and Discover also offer custodial accounts, often with higher interest rates and no monthly fees.

Compare accounts on interest rate, minimum balance requirement, and monthly fees. Some accounts have no minimum balance and no fees; others require $25 to $100 to open and charge a monthly maintenance fee if the balance drops below a certain level. If your grandchild is very young and you plan to add money over time, a no-fee account makes more sense than one with ongoing costs.

You can open the account in person at a local branch, by mail, or online depending on the bank. If you open online, you will still need to verify documents — most banks will mail you a form to sign and return, or ask you to upload photos of the documents.

Frequently Asked Questions

Can I withdraw money from my grandchild's custodial account to pay for their expenses?

Yes. As custodian, you can withdraw money for any expense that benefits your grandchild — food, clothing, education, medical care, or activities. You do not need your grandchild's permission. However, the money belongs to them legally, so withdrawals should be for their benefit, not yours.

What if I want to leave money to my grandchild in my will instead of opening a custodial account?

You can do that, but the money will go through your estate and may be subject to probate, which takes time and costs money. A custodial account transfers directly to your grandchild outside your estate, which is faster and simpler. If you want more control over how the money is used after you die, a trust is a better option than either a will or a custodial account.

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

Yes. You do not have to be a parent to be a custodian. You will need to provide your identification and relationship to the child, but banks do not restrict custodial accounts to parents only. Grandparents, aunts, uncles, and other relatives can all open custodial accounts.

What happens to the account if my grandchild dies before turning 18?

The money in the account becomes part of your grandchild's estate and is distributed according to their will or, if they have no will, according to your state's inheritance laws. This is rare, but it is worth thinking about when you open the account. Some families choose a trust instead of a custodial account for this reason.

Can I change my mind and close the account before my grandchild turns 18?

You can close the account, but the money still belongs to your grandchild. You cannot keep it for yourself. The funds would need to go to your grandchild or be held in a different account in their name. Closing a custodial account and trying to keep the money is considered theft.