You need the child's Social Security number, a parent or guardian's ID, and proof of address — then you choose between a custodial account (you control it until they turn 18 or 21) or a UTMA/UGMA account (similar structure, state-dependent rules)

A savings account for a grandchild is a legal arrangement where you deposit money that belongs to the child, not to you. The account sits in the child's name, but because minors cannot sign contracts or manage money, an adult — usually a parent, guardian, or you as the grandparent — acts as custodian. That custodian controls the account until the child reaches the age of majority, which is 18 in most states but 21 in a few.

The two main structures are a custodial account (the simplest and most common) and a UTMA or UGMA account (Uniform Transfers to Minors Act or Uniform Gifts to Minors Act, depending on your state). Both work similarly: you deposit money, it earns interest, and the child receives it when they come of age. The difference lies in what you can fund them with and how strictly the law governs them. For most grandparents opening a basic savings account, a custodial account is the right choice.

Key Takeaways

  • You will need the child's Social Security number, a parent or guardian's government-issued ID, and a recent utility bill or lease showing the address where the child lives.
  • Most banks allow a grandparent to open a custodial account, but the account must be in the child's name with you listed as custodian — the money belongs to the child, not to you.
  • The child gains control of the account when they turn 18 or 21, depending on your state and the account type, and you cannot take the money back once it is deposited.
  • Custodial accounts have tax implications: the child pays tax on interest earned above a certain threshold (currently around $1,300 per year), but the rate is usually lower than an adult's.
  • Some banks offer youth savings accounts with lower minimums and no monthly fees, which can be a good starting point before moving to a custodial account.

What documents you need to bring to the bank

The bank will ask for the child's Social Security number — this is non-negotiable. If the child does not have one, you can request one from the Social Security Administration before opening the account, though some banks will hold the account open temporarily while you obtain it.

You will also need a government-issued ID for the parent or legal guardian — a driver's license or passport. The bank uses this to verify the guardian's identity and confirm they consent to the account. If you are the grandparent opening the account, the parent or guardian must be present or must sign a form authorizing you to act on their behalf. Some banks allow this by mail or electronically; others require in-person signatures.

Finally, bring proof of the address where the child lives — a recent utility bill, lease, or mortgage statement in the parent's or guardian's name. The bank needs this to comply with federal anti-money-laundering rules. A cell phone bill or insurance statement usually works as well.

The difference between custodial accounts and UTMA/UGMA accounts

A custodial account is the simplest option. You open it at a bank or credit union, deposit money in the child's name, and you manage it as custodian until the child reaches 18 or 21. There are no special tax forms to file, no restrictions on what you can fund the account with, and no state-specific rules beyond the age at which control transfers. Most banks offer custodial savings accounts with no minimum balance or monthly fee.

A UTMA or UGMA account is a legal structure that exists in every state but varies slightly by state law. UTMA (Uniform Transfers to Minors Act) is newer and more flexible — it allows you to fund the account with money, securities, real estate, or other property. UGMA (Uniform Gifts to Minors Act) is older and typically limited to gifts of money or securities. Both require you to file a tax return for the child if interest or investment income exceeds the annual threshold. Both transfer control to the child at 18 or 21, depending on your state.

For a straightforward savings account, a custodial account is usually sufficient and requires less paperwork. UTMA accounts make sense if you plan to fund the account with investments, stocks, or property, or if you want the legal structure to be explicit in state law. Ask the bank which option they offer — not all banks distinguish between them, and some use the terms interchangeably for basic savings accounts.

How the account works once it is open

Once the account is open, you can deposit money whenever you want. There is no limit on how much you can deposit per year (though gifts over a certain amount have federal tax implications for you as the donor — currently $18,000 per year per person, but this is a tax issue, not a banking one, and you should consult a tax professional if you are depositing large sums). The money earns interest at whatever rate the bank offers for that account type, usually between 0.01% and 5% depending on the bank and account tier.

You control the account as custodian. You can deposit money, withdraw money to pay for the child's expenses (education, medical care, living costs), and move money between accounts. You cannot withdraw money for your own use — the account is the child's property, and using it for yourself is a legal violation. Some custodians set rules for themselves: only withdraw for specific purposes, or only withdraw with the parent's permission.

The child cannot access the account until they reach the age of majority. At that point, control transfers automatically. You will no longer be able to withdraw money without their permission. Some banks send a notice when the child turns 18 or 21; others do not. It is worth marking your calendar and contacting the bank to confirm the transition.

Tax reporting and what the child owes

Interest earned in a custodial account is taxable income to the child. The bank will send you a 1099-INT form each January if interest exceeds $10. You (or the parent) will need to report this on the child's tax return.

The child's tax rate on this interest is usually lower than an adult's because children in lower tax brackets pay less. However, there is a threshold: the first $1,300 of unearned income (interest, dividends) is typically not taxed, and the next portion is taxed at the child's rate. Above that, some of the income may be taxed at the parent's rate under the "kiddie tax" rule. The exact threshold changes yearly, so check the IRS website or ask a tax professional for the current year's numbers.

If the account earns very little interest — which is common in basic savings accounts — you may owe no tax at all. If you are depositing significant money and expect substantial interest, talk to a tax professional before opening the account so you understand the implications.

When a parent or guardian must be involved

The parent or legal guardian must consent to the account. If you are opening it without the parent present, you will need their written authorization, usually a form the bank provides. Some banks require the parent to sign in person; others accept a notarized form or electronic signature.

If the child's parents are divorced or there is a custody dispute, both parents may need to consent, or only the custodial parent may have authority — this varies by state and by the custody order. Ask the bank what they require. If there is any question about who has legal authority over the child, bring the custody order or guardianship papers with you.

Once the account is open, the parent can usually see the balance and transaction history if they are listed as an authorized user. You can ask the bank to restrict what the parent can do — for example, they can view but not withdraw — or to keep the account private to you as custodian. These rules vary by bank.

Where to open the account and what to compare

Most banks and credit unions offer custodial savings accounts. Compare them on three things: interest rate, minimum balance, and monthly fees. A high-yield savings account at an online bank might offer 4% to 5% interest with no minimum and no fees, while a traditional bank might offer 0.01% with a $25 monthly fee if the balance drops below $500. Over time, the difference compounds.

Some banks offer youth savings accounts specifically designed for minors, with lower minimums (sometimes $0) and no monthly fees. These are often a good entry point. Once the child is older or the balance grows, you can move the money to a higher-yield account.

Check whether the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions). This protects your deposit up to $250,000 if the institution fails. Most mainstream banks and credit unions are insured; verify before opening.

Frequently Asked Questions

Can I open a savings account for my grandchild if their parent does not want me to?

No. The parent or legal guardian must consent. If there is a custody order, the custodial parent usually has the authority to consent. If you open an account without consent, the parent can demand the bank close it and return the funds. If there is a family conflict, it is better to have a conversation with the parent first.

What happens to the money when my grandchild turns 18?

Control of the account transfers to your grandchild automatically. You can no longer withdraw money or make decisions about the account without their permission. Some grandchildren continue to use the account; others close it and move the money elsewhere. You have no legal claim to the money once the transfer happens.

Can I take money out of the account if my grandchild needs it for school?

Yes, as custodian you can withdraw money for the child's benefit — education, medical care, living expenses. You cannot withdraw it for your own use. If you are unsure whether a specific expense qualifies, ask a tax professional, because withdrawals for certain purposes (like education) may have tax advantages.

Do I need to file special tax forms for a custodial account?

Not unless the account earns more than $10 in interest per year. The bank sends a 1099-INT, and you report it on the child's tax return. If interest is very low, you may owe no tax. A tax professional can advise you on the specific rules for your situation.

What if I want to leave money to my grandchild in my will instead?

A custodial account is different from a will. Money in a custodial account goes to your grandchild when they turn 18 or 21, regardless of what your will says. If you want to leave money through your will, you would not open a custodial account. Talk to an estate attorney about the best way to structure a gift for your grandchild's future.