Yes, you can open a savings account for your granddaughter, but the rules depend on her age and your relationship to the bank

If your granddaughter is under 18, you will need to open a custodial account or UTMA/UGMA account in her name with yourself as the custodian. The account belongs to her legally, but you control it until she reaches the age of majority (18 or 21, depending on your state and the account type). If she is 18 or older, she can open her own account without you, though you can still help her do it.

Most banks and credit unions offer custodial savings accounts. The process is straightforward: you bring identification, proof of address, and your granddaughter's Social Security number or tax ID. Some banks require her to be present; others do not. Once opened, you deposit money, manage the account, and withdraw funds as needed for her benefit until she comes of age.

Key Takeaways

  • Custodial accounts let you open and control a savings account in your granddaughter's name until she turns 18 or 21, depending on your state.
  • You will need her Social Security number, your ID and proof of address, and sometimes her presence in person to open the account.
  • Money in a custodial account belongs to her legally, so it may affect her financial aid may be able to access if she later attends college.
  • When she reaches the age of majority, the account transfers to her control automatically — you cannot prevent that or take the money back.
  • UTMA and UGMA accounts are custodial accounts with tax advantages, but the rules vary by state.

Custodial accounts versus UTMA and UGMA accounts

A custodial account is a general term for any savings account opened in a minor's name with an adult in control. A UTMA account (Uniform Transfers to Minors Act) and UGMA account (Uniform Gifts to Minors Act) are specific types of custodial accounts with tax benefits. Not all states allow both; some recognize only UTMA. The difference matters mainly for taxes and what kinds of assets can be held.

In a UTMA or UGMA account, earnings (interest) are taxed at your granddaughter's rate, which is usually lower than yours. The first $1,250 of earnings per year (as of 2024) is typically tax-free; the next $1,250 is taxed at her rate; anything above that is taxed at your rate. A regular custodial account may not have these same tax breaks, so ask your bank which type they offer and whether it makes a difference for your situation.

The main drawback of UTMA and UGMA accounts is that when your granddaughter reaches the age of majority, the money becomes hers to spend however she wants. You have no say in what she does with it, and you cannot take it back. This is by design — the law treats the money as a gift to her, not a loan or a trust you control.

What documents and information you will need

Bring your government-issued ID (driver's license or passport), proof of your current address (utility bill or bank statement from the last 60 days), and your granddaughter's Social Security number. If you do not have her Social Security number, you can request one from the Social Security Administration using Form SS-5, though this adds time to the process.

Some banks require your granddaughter to be present in person to sign documents; others allow you to open the account without her. Call ahead to ask. If she needs to be there, bring her ID or birth certificate as well. A few banks may ask for additional information, such as her date of birth, your relationship to her, or the source of the initial deposit.

If you are opening the account online, you may be able to complete most of the process remotely, but the bank will likely still require you to verify your identity — usually by uploading a photo of your ID or answering security questions based on your credit history.

How the account works once it is open

Once the account is open, you can deposit money whenever you want. You receive a debit card or checkbook in your granddaughter's name, but as the custodian, you control it. You can withdraw money for her benefit — for school expenses, medical costs, activities, or everyday needs. There is no legal requirement to tell her about the account or ask her permission to withdraw, though many grandparents do as she gets older.

The account earns interest, which is added to the balance. That interest is taxed, but at her rate rather than yours, which is usually a tax advantage. You will receive a 1099-INT form each year showing the interest earned, which you will need to report on her tax return (if she is required to file one).

You can add other people as authorized users or joint owners, though this changes the legal structure of the account. Speak with the bank about the implications before doing so. If you die before your granddaughter reaches the age of majority, the account does not automatically go to your estate — it remains in her name and may require a court order to transfer to a new custodian.

The age of majority and what happens then

When your granddaughter reaches the age of majority — 18 in most states, 21 in a few — the custodial account automatically becomes hers. She can withdraw all the money, close the account, or keep it open. You lose all legal control. This is not negotiable; the law does not allow you to extend your control or require her to ask your permission.

If you are concerned about her spending the money unwisely, a custodial account may not be the right tool. A trust (set up through an attorney) gives you more control over when and how she can access the money, even after she turns 18. Trusts are more expensive to set up and maintain, but they let you specify conditions — for example, that she can only withdraw money for college or that distributions happen at ages 25, 30, and 35 rather than all at once.

Impact on financial aid and other considerations

Money in a custodial account in your granddaughter's name counts as her asset when she applies for federal student aid (FAFSA). This can reduce the amount of aid she receives, because the government assumes she will use her own assets first. The impact varies depending on how much is in the account and her family's overall financial situation, but it is worth understanding before you deposit large sums.

If your granddaughter receives means-tested benefits — such as Supplemental Security Income (SSI) or Medicaid — a custodial account in her name can affect her may be able to access. Some benefits have strict asset limits, and money in her account counts toward those limits. If she receives benefits, consult with a benefits counselor before opening an account in her name.

A custodial account also does not protect the money from creditors if your granddaughter is sued or owes a debt. Once she reaches the age of majority, creditors can pursue the account just as they would any other asset in her name.

Alternatives to a custodial account

If you want to save for your granddaughter but do not want her to have automatic access at 18, consider a 529 college savings plan. You open and control the account, and the money can only be used for education expenses. If she does not go to college, you can transfer the money to another family member's 529 plan or withdraw it (though you will owe taxes and a penalty on the earnings).

A trust is another option if you want more control over when she receives the money. You work with an attorney to set up the trust, name yourself as trustee, and specify the terms — for example, that she receives the money at age 25, or in installments, or only for certain purposes. This costs more upfront but gives you flexibility a custodial account does not.

You can also straightforward keep the money in your own account and leave it to her in your will. This keeps the money under your control during your lifetime and lets you decide in your will how it should be distributed. The downside is that it becomes part of your estate and may be subject to estate taxes or creditor claims.

Frequently Asked Questions

Do I need my granddaughter's permission to open a custodial account for her?

No. As the adult, you can open a custodial account in her name without her knowledge or consent. However, many grandparents tell the child about the account as she gets older, especially once she is a teenager. The account legally belongs to her, but you control it until she reaches the age of majority.

What happens if I die before my granddaughter turns 18?

The account remains in her name, but you will no longer be the custodian. Your will or state law will determine who becomes the new custodian — usually a parent, another family member, or a court-appointed guardian. If no one is named, a court may have to appoint someone. Name a successor custodian in your will to avoid this.

Can I withdraw money from the account for my own expenses?

Legally, no. The money belongs to your granddaughter, and you can only withdraw it for her benefit. Using custodial account funds for your own expenses is considered misappropriation and can have legal consequences. If you need to save money for yourself, open your own account instead.

Will the account affect her ability to get student loans or grants?

Yes. Money in a custodial account in her name counts as her asset on the FAFSA and will reduce the amount of need-based aid she receives. The impact depends on the account balance and her family's income. If college funding is your goal, a 529 plan may be a better choice because it has different treatment under financial aid rules.

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

No. Once a custodial account is opened in your granddaughter's name, it belongs to her. You cannot transfer the money to another child's account or change who the account is for. If you want to save for multiple grandchildren, you will need to open separate accounts for each one.