What you need to open an account in a grandchild's name

You can open a savings account for a grandchild, but the account structure depends on the child's age and whether you want them to access it later. Banks and credit unions offer three main routes: a custodial account (where you control the money until they reach the age of majority, usually 18 or 21), a joint account (where both of you can withdraw), or an account in their name alone (which requires their Social Security number but gives them when ready control). Most grandparents choose custodial accounts because they provide legal protection and tax advantages.

To open any account, you will need the child's Social Security number, a birth certificate or state ID, and proof of your own identity and address. If the child is very young and has no Social Security number yet, you can obtain one through the Social Security Administration before opening the account, or some institutions will let you open the account and add the number later. The financial institution will also ask for the child's current address, which is typically your address if they live with you or their parent's address if they don't.

Key Takeaways

  • A custodial account lets you control the money and make deposits until the child reaches the age of majority (18 or 21, depending on your state), at which point the account transfers to them.
  • You will need the child's Social Security number, birth certificate, and your own ID and proof of address to open the account.
  • Custodial accounts have tax advantages: the first $1,250 of annual earnings (as of 2024) is tax-free to the child, and earnings above that are taxed at the child's rate rather than yours.
  • Different states set different ages of majority, so confirm whether the account transfers at 18 or 21 in your state before you open it.
  • You can deposit money into a custodial account at any time, and the child cannot withdraw without your permission until they reach the age of majority.

Custodial accounts: the most common choice for grandparents

A custodial account is a savings account held in the child's name but controlled by you (the custodian) until they reach the age of majority. You make all deposits and withdrawals, and the child has no access to the money until that date arrives. At that point, the account becomes theirs entirely, and you lose all control. This structure is legally defined by the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA), depending on your state.

The main advantage is tax efficiency. Money in a custodial account is owned by the child, so investment earnings are taxed at their rate, which is usually lower than yours. As of 2024, the first $1,250 of unearned income (interest, dividends) is tax-free, and the next $1,250 is taxed at the child's rate. Only earnings above $2,500 are taxed at your rate. This matters if you are depositing a large sum and expecting it to earn interest or dividends.

The disadvantage is loss of control. Once the child reaches the age of majority, the account is theirs, and you cannot prevent them from withdrawing it all. Some grandparents use this as a teaching tool; others worry about the child's judgment. If you want to retain control longer, a trust (which requires a lawyer) is an alternative, but it is more expensive and complex to set up.

How to choose between banks, credit unions, and investment accounts

Most banks and credit unions offer custodial savings accounts with no minimum deposit and no monthly fees. These are the simplest option if your goal is to set aside money and let it grow slowly. Interest rates on savings accounts vary widely—some banks offer less than 0.01% annual interest, while others offer 4% to 5% depending on the account type and current market conditions. Before opening, compare rates at a few institutions and ask whether the rate is may provide or promotional.

If you want the money to grow faster, you can open a custodial investment account at a brokerage like Fidelity, Vanguard, or Charles Schwab. These accounts hold stocks, bonds, or mutual funds instead of cash. Investment accounts carry more risk than savings accounts—the value can go down as well as up—but historically have higher long-term returns. They also have the same tax advantages as custodial savings accounts. Many brokerages have no minimum deposit for custodial accounts, though some require $500 or $1,000.

A third option is a 529 education savings plan, which is a custodial account specifically designed for college expenses. It has tax advantages for education but restrictions on how the money can be used. If your goal is to save for college, a 529 may be more efficient than a general savings account. If your goal is to give the child money for any purpose, a regular custodial account is simpler.

The step-by-step process at a bank or credit union

Contact the bank or credit union and ask to open a custodial savings account. You can usually do this online, by phone, or in person. Have the child's Social Security number, birth certificate, and your ID ready. The institution will ask you to confirm your relationship to the child (grandparent) and will verify your identity by checking your address and sometimes running a background check.

You will sign paperwork stating that you are opening the account as custodian under your state's UTMA or UGMA law. This paperwork names you as the custodian and the child as the beneficiary. Read it carefully, because it specifies the age at which the account transfers to the child—usually 18 or 21. Some states let you choose; others set it by law. Once you sign, the account is open and you can deposit money when ready.

The bank will issue a debit card or checkbook in your name (not the child's), because you are the one making withdrawals. Some institutions let you set up online access so you can check the balance and make transfers from your computer. If the child is old enough, you can request a second debit card in their name for the account, though you remain the custodian and can monitor all activity.

What happens when the child reaches the age of majority

On the date the child turns 18 or 21 (depending on your state and the account terms), the custodial account automatically becomes their account. You lose all legal control and cannot make withdrawals or deposits without their permission. The child can withdraw the entire balance, close the account, or leave it open and manage it themselves. This transfer happens automatically—you do not need to sign anything or notify the bank, though it is wise to tell the child what is happening so they are not surprised.

If you want to avoid this outcome, you have a few options. You can withdraw the money before the child reaches the age of majority and give it to them as a gift (though this defeats the purpose of saving). You can open a trust instead of a custodial account, which lets you specify conditions for when and how the child can access the money, but trusts are expensive to set up and maintain. Or you can have a conversation with the child before they reach the age of majority about your expectations for how they use the money.

Tax reporting and annual statements

The bank or brokerage will send you a statement each year showing the interest or investment earnings in the account. If the earnings exceed $1,250 in a year, you will need to report them on the child's tax return. This requires the child to have a Social Security number and usually means filing a return even if they have no other income. Many grandparents hire a tax preparer to handle this, or use tax software that guides you through reporting custodial account income.

The financial institution will also send a 1099-INT (for interest) or 1099-DIV (for dividends) form showing the earnings. Keep these forms with your tax records. If you are unsure how to report the income, the IRS website has a guide for parents and custodians, or you can ask a tax professional.

Frequently Asked Questions

Can I open a custodial account if the grandchild doesn't have a Social Security number yet?

Yes. You can obtain a Social Security number for the child through the Social Security Administration before opening the account, or you can ask the bank whether they will open the account and let you add the number later. Most institutions prefer to have the number at the time of opening, but some will work with you if you provide it within 30 days.

What is the difference between UTMA and UGMA accounts?

UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) are state laws that define how custodial accounts work. UTMA is newer and broader—it covers gifts of any kind, including real estate and life insurance. UGMA is older and covers only gifts of money and securities. Most states use UTMA now, but some still use UGMA or allow both. Your bank will tell you which applies in your state.

Can I change my mind and close the account before the child reaches the age of majority?

Yes. You can withdraw the money and close the account at any time while you are the custodian. However, the money still belongs to the child legally, so withdrawing it for your own use may have tax consequences or violate the terms of the account. It is best to treat the account as belonging to the child and only withdraw money for their benefit.

Will a custodial account affect the child's financial aid for college?

Yes. Money in a custodial account is counted as the child's asset when calculating financial aid, which can reduce the amount of aid they receive. A 529 education savings plan is treated more favorably under financial aid rules, so if college funding is your main goal, a 529 may be better than a general custodial account.

Can I name someone else as custodian if something happens to me?

No. A custodial account has only one custodian at a time. If you die, the account does not automatically pass to another custodian—it becomes part of your estate. To may support someone else can manage the account for the child, you can name a successor custodian in your will or trust, but this requires legal paperwork. Ask your bank whether they have a process for naming a successor custodian.