Yes, you can open savings accounts for your grandchildren, but the structure depends on their age and your relationship to them

You have three main paths: open a custodial account in their name (you control it until they reach the age of majority), open a joint account with a parent or guardian's permission, or open an account in your own name and gift the money to them later. The first option—a custodial account—is the most common because it lets you fund the account now while keeping the money legally theirs from the start. The second requires parental consent and gives you less control. The third avoids paperwork but means the money is yours until you decide to transfer it.

Which path works best depends on whether you want the account to be a gift that belongs to them, a teaching tool you manage together, or straightforward a way to set money aside. Each has different tax consequences and different rules about what happens if you die or become unable to manage the account.

Key Takeaways

  • A custodial account (UGMA or UTMA) lets you open and fund an account in your grandchild's name, with you as custodian controlling it until they reach age 18 or 21 depending on your state.
  • You will need your grandchild's Social Security number and permission from their parent or legal guardian to open a custodial account.
  • Money in a custodial account belongs to your grandchild for tax purposes, so earnings above a certain threshold are taxed at their rate rather than yours, which is usually lower.
  • If you die, the account transfers to the grandchild automatically—it does not go through your will—so name a successor custodian in case you become unable to manage it.
  • Joint accounts with a parent or guardian are simpler to set up but give you less control and may affect the grandchild's financial aid may be able to access later.

How custodial accounts work and why they are the most common choice

A custodial account is a savings or investment account opened in your grandchild's name, with you named as the custodian. You control the account and make all decisions about deposits and withdrawals while the child is a minor. The money is legally theirs, not yours, which matters for taxes and for what happens if you die.

There are two types: UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). UTMA is newer and available in all 50 states; UGMA is older and not available in South Carolina. Both work the same way from a practical standpoint—the difference is mainly in what types of assets you can hold. For a savings account, either one works. Ask the bank which one they offer.

When your grandchild reaches the age of majority—18 in most states, 21 in a few—the account becomes theirs to control. You lose all authority at that point. If you want to keep some control longer, a custodial account is not the right tool; you would need a trust instead, which requires a lawyer.

What you need to open a custodial account

You will need your grandchild's Social Security number, their date of birth, and their current address. You will also need your own identification and Social Security number. Most banks require you to open the account in person, though some allow online opening if you can verify your identity through their app.

Before you start, get permission from the child's parent or legal guardian. Banks do not always ask for written consent, but you should have it anyway—opening an account without parental knowledge can damage your relationship and create confusion later. A straightforward email or text saying "I'd like to open a savings account for [child's name] in their name with me as custodian" is enough.

Bring a government-issued ID (driver's license or passport), your Social Security number, and the grandchild's Social Security number and date of birth. Some banks ask for the child's address; if they live with their parent, use that address. A few banks require the parent or guardian to be present or to sign a consent form, so call ahead and ask what your bank requires.

Tax consequences of custodial accounts

Money in a custodial account belongs to your grandchild for tax purposes. That means interest and dividends are taxed at their rate, not yours. For 2024, the first $1,450 of unearned income (interest, dividends) is tax-free for a dependent minor. The next $1,450 is taxed at the child's rate, which is usually 10 percent. Anything above $2,900 is taxed at your rate.

This is usually a huge advantage. If you put $10,000 in a savings account earning 4 percent, that is $400 in annual interest. If you were taxed at 24 percent, you would owe $96 in taxes. Your grandchild owes nothing on the first $1,450 and then 10 percent on anything above that. The difference adds up over time.

The downside: money in a custodial account counts as the child's asset when they later explore for financial aid for college. Schools assume students will contribute a larger percentage of their assets than parents will. A $10,000 custodial account might reduce financial aid by $2,000 to $3,000. If college aid is a concern, talk to a tax professional before opening the account.

What happens to the account if you die or become incapacitated

When you open a custodial account, you name yourself as custodian. You should also name a successor custodian—usually the child's parent or another trusted adult. If you die or become unable to manage the account, the successor takes over automatically. The account does not go through your will; it transfers outside of probate.

If you do not name a successor, the bank will freeze the account until the court appoints someone. That can take weeks or months and create stress for the family. Naming a successor takes five minutes and prevents that problem.

Talk to the successor custodian before you name them. Make sure they understand what the account is for and that they are willing to take it over if needed. If the successor dies before you do, the account stays in your name as custodian until you update the paperwork—so check in every few years and update if circumstances change.

Joint accounts as an alternative

A joint account with a parent or guardian is simpler to set up and requires less paperwork. Both of you can deposit and withdraw money. The parent does not need to give permission the way they do for a custodial account because they are a co-owner.

The downside is that you have less control. Either owner can withdraw all the money at any time. If the parent needs the money for their own expenses, they can take it. If the parent dies, the account goes to you automatically (as a joint owner), not to the grandchild. If you die, it goes to the parent, not the grandchild.

Joint accounts also count as the parent's asset for financial aid purposes, which is better than a custodial account from a college aid standpoint—parents are expected to contribute less of their assets than children are. But the account is not legally the grandchild's, so it does not teach them ownership the way a custodial account does.

Accounts in your name that you plan to gift later

You can straightforward open a savings account in your own name and tell your family you are setting it aside for a grandchild. This requires no paperwork, no permission, and no coordination with anyone. The money is yours until you decide to transfer it.

The catch is that it is truly yours. If you need the money for medical bills or long-term care, you can use it. If you die before transferring it, it becomes part of your estate and goes through probate according to your will. Your grandchild has no legal claim to it unless you have named them in your will.

This approach works if you are young and healthy and confident you will not need the money. It does not work as well if you are older or have health concerns, because there is a real risk the money will not reach the grandchild. It also does not teach the grandchild that the account is theirs.

Frequently Asked Questions

Do I need the parent's permission to open a custodial account?

Legally, it depends on your state and the bank. Some banks require written parental consent; others do not. Practically, you should always get permission before opening an account in someone else's child's name. It prevents misunderstandings and keeps your relationship intact.

What happens when my grandchild turns 18?

The account becomes theirs to control. You lose all authority. They can withdraw all the money, close the account, or leave it open. If you want to keep control past age 18, a custodial account will not work—you would need a trust set up by a lawyer.

Can I withdraw money from a custodial account for the grandchild's expenses?

Yes, as long as the money is spent on the child's benefit—education, medical care, housing, food. You cannot withdraw it for your own use. If you do, the IRS may treat it as a gift from you to the child, which could have tax consequences.

Will a custodial account hurt my grandchild's chances of getting financial aid?

Yes, it will reduce their aid may be able to access. Schools count student assets at a higher rate than parent assets. A $10,000 custodial account might reduce aid by $2,000 to $3,000 per year. If college aid is important, talk to a financial aid advisor or tax professional before opening the account.

What if I want to leave money to multiple grandchildren?

Open a separate custodial account for each one. You cannot put multiple children's names on one custodial account. If you want to manage money for several grandchildren, you can open multiple accounts or set up a trust, which requires a lawyer but gives you more flexibility.