You can open a savings account for a grandchild in your name, or set up a custodial account that transfers to them at a set age
The route you choose depends on whether you want the account to be legally theirs now or yours until they reach adulthood. A custodial account (also called a UGMA or UTMA account, depending on your state) is opened in the child's name but you control it until they turn 18 or 21. A regular savings account opened in your name with the child as a beneficiary stays yours, but you can name them to inherit it if something happens to you. Both work; the difference is control and tax treatment.
Most banks and credit unions offer both types. You will need the child's Social Security number either way, and for a custodial account you will also need to show you are their parent or legal guardian (or have written permission from the parent). The process takes 15 to 30 minutes in person or online, depending on the bank.
Key Takeaways
- A custodial account is opened in your grandchild's name with you as custodian, and transfers to them automatically at age 18 or 21 depending on your state and the account type.
- A regular savings account in your name with the child named as beneficiary stays under your control but passes to them through your will or automatically if the account is set up as "payable on death."
- You will need the child's Social Security number and proof of your relationship to open either type of account.
- Custodial accounts have tax advantages for smaller amounts but may affect the child's financial aid may be able to access later, so check with a tax professional if you are depositing more than a few thousand dollars.
- Most banks let you open an account online in 15 to 30 minutes, though some require you to visit a branch in person.
Custodial accounts: what you control and when it transfers
A custodial account is registered in the child's name but you manage it until they reach the age set by your state law. In most states that age is 18 for UGMA (Uniform Gifts to Minors Act) accounts and 21 for UTMA (Uniform Transfers to Minors Act) accounts, though some states allow you to choose. You deposit money, decide where it is invested, and withdraw funds for the child's benefit—education, medical care, or other needs.
When the child reaches the transfer age, the account becomes theirs completely. They can withdraw it, spend it, or leave it alone. You lose all control at that point. This is the main trade-off: the account is a genuine gift with tax advantages, but you cannot change your mind or restrict how they use it later.
To open a custodial account, you will need the child's Social Security number, your own identification, and proof that you are the parent or legal guardian. If you are the grandparent, most banks require written consent from the parent. Some banks let you open one online; others require a branch visit. Call ahead to ask what your bank needs.
Regular savings accounts with beneficiary designation
A simpler route is to open a regular savings account in your own name and name the grandchild as the beneficiary. The account stays yours during your lifetime—you control all deposits, withdrawals, and decisions. When you die, the account passes directly to the child without going through your will, which can be faster.
This approach gives you complete control now and lets you change your mind later if circumstances change. You can withdraw the money yourself, adjust the interest rate or account type, or even remove the beneficiary designation. The downside is that the money is taxed as your income while you hold it, and the child has no legal claim to it while you are alive.
To set this up, open a regular savings account and ask the bank for a "payable on death" (POD) form or beneficiary designation form. You fill in the child's name and Social Security number. This takes five minutes and costs nothing. Some banks do this online; others require a form in person.
What you need to bring or provide
| Account Type | What You Need | Where to Get It |
|---|---|---|
| Custodial account | Your ID, child's Social Security number, proof you are parent or guardian (or written parental consent if you are grandparent) | ID from state DMV; Social Security number from child's Social Security card or birth certificate; parental consent letter signed by parent |
| Regular account with POD beneficiary | Your ID, child's Social Security number (for beneficiary form) | ID from state DMV; Social Security number from child's Social Security card or birth certificate |
If you do not have the child's Social Security number, you can request a copy from the parent or contact the Social Security Administration directly with proof of your relationship. The process takes a few days to a few weeks by mail.
Tax treatment and financial aid impact
Money in a custodial account is considered the child's asset for tax purposes. If the account earns less than $1,300 in interest or investment gains per year (this threshold changes annually), there is no tax owed. Above that, the child pays tax on the earnings at their own rate, which is usually lower than yours. This is the main tax advantage of custodial accounts.
However, custodial accounts count as the child's asset when they explore for college financial aid, and they reduce aid may be able to access more than parent-owned accounts do. If you are planning to save a large amount for education, talk to a tax professional or financial aid advisor before opening a custodial account. A 529 education savings plan or a regular account in your name might be better.
Money in a regular account in your name is taxed as your income and does not affect the child's financial aid. This is an advantage if the child will eventually need financial aid for college.
Where to open the account
Most banks, credit unions, and online banks offer both custodial and regular savings accounts. National banks like Chase, Bank of America, and Wells Fargo have branches everywhere and offer both types. Credit unions often have lower fees and higher interest rates, but you have to be a member. Online banks like Ally, Marcus, and Discover have no branch requirement and often pay more interest, but you cannot deposit cash in person.
Call or visit the bank's website and ask whether they offer custodial accounts and what documents they need. Some banks have a minimum deposit (often $25 to $100); others do not. Ask about the interest rate, monthly fees, and whether you can open the account online or need to visit a branch.
Moving money in and managing the account
Once the account is open, you can deposit money by check, electronic transfer, or cash (if you visit a branch). Set up automatic transfers from your checking account if you want to deposit regularly—many grandparents do $25 or $50 per month.
For a custodial account, you manage it like any other account: you can move money between accounts at the same bank, withdraw it, or invest it in a money market fund or other options the bank offers. Keep records of what the money was used for in case questions come up later. For a regular account with a beneficiary, you manage it the same way—the beneficiary designation only matters after you die.
If the child is old enough, some banks let you add them as an authorized user on a custodial account so they can see the balance and learn about saving. Ask the bank what age they allow this.
Frequently Asked Questions
Can I open an account if I am not the parent or legal guardian?
For a custodial account, most banks require written consent from the parent. For a regular account with a beneficiary, you can open it in your own name without the parent's permission. The parent cannot access or control it, but they should know about it so there are no surprises later.
What happens to the money if I die before the child reaches the transfer age?
For a custodial account, the money stays in the account and a court-appointed guardian manages it for the child until the transfer age. For a regular account with POD beneficiary, the money goes directly to the child (or to your estate if the child is very young, depending on state law). Talk to an estate attorney if you have concerns.
Can I withdraw money from a custodial account for my own use?
Technically yes, but you should not. The money is a gift to the child, and withdrawing it for yourself is considered a breach of your duty as custodian. Some states allow withdrawals only for the child's benefit. Keep records of what you spend it on.
Does opening an account for my grandchild affect my taxes?
Not directly. Money you deposit is not deductible. Interest or investment gains in a custodial account are taxed to the child; in a regular account in your name, they are taxed to you. If you are making large gifts, ask a tax professional about gift tax rules in your state.
What is the difference between UGMA and UTMA accounts?
UGMA accounts transfer at age 18; UTMA accounts transfer at age 21 (in most states). UTMA accounts can also hold real estate and other property, not just cash. Ask your bank which one they offer and which makes sense for your situation.