Yes, grandparents can open savings accounts for grandchildren, but the account structure depends on the child's age and your relationship to them

Grandparents can set up savings accounts in a grandchild's name at most banks and credit unions. The mechanics differ based on whether the child is a minor or an adult, and whether you want the account in their name alone or in both your names. For children under 18, you will typically open a custodial account — a legal structure where you control the money until the child reaches the age of majority (18 or 21, depending on your state). For adult grandchildren, you can straightforward open a joint account or help them open an individual account.

The account itself works the same way as any other savings account: money sits in the bank, earns interest, and the child can withdraw it when they need to. The difference is in who has legal control over the money and when that control transfers to the grandchild.

Key Takeaways

  • Custodial accounts let you open a savings account for a minor grandchild in their name, with you controlling the money until they reach 18 or 21.
  • You will need the grandchild's Social Security number and birth certificate to open a custodial account, and some banks require proof of your relationship to the child.
  • The money in a custodial account belongs to the grandchild for tax purposes, which can affect financial aid calculations and the child's tax liability if interest earned is high.
  • Once the grandchild reaches the age of majority, the account becomes theirs to control — you lose access and cannot withdraw money without their permission.
  • Joint accounts with adult grandchildren work differently: both of you can withdraw money at any time, and the account does not automatically transfer ownership.

Custodial accounts for minor grandchildren

A custodial account is the standard way grandparents save money for grandchildren under 18. You open the account in the child's name, but you are the custodian — the adult who manages the money. The child's Social Security number goes on the account, not yours, because the money legally belongs to them from day one. This matters for taxes and for financial aid later.

To open a custodial account, you will need the child's Social Security number, their birth certificate, and your own ID. Some banks ask for proof that you are the grandparent — a birth certificate showing your relationship, or a court document if you have guardianship. Call the bank first to ask what they require; requirements vary by institution. Most major banks (Chase, Bank of America, Wells Fargo) and credit unions offer custodial accounts, though some smaller banks do not.

The account stays in your control until the grandchild reaches the age of majority. In most states that is 18; in a few it is 21. When they turn that age, the account automatically becomes theirs. You lose access. You cannot withdraw money without their permission, and they can spend it however they want. This is a legal requirement, not a choice the bank makes — the custodianship ends by law.

What documents you need to bring

Banks vary in what they require, but the core documents are consistent. Bring your ID (driver's license or passport), the grandchild's birth certificate, and their Social Security number. If you do not have the Social Security number, you can request one from the Social Security Administration before opening the account, or some banks will let you open the account and add the number later.

If you are not the parent or legal guardian, some banks ask for a letter from the parent giving you permission to open the account. This is not always required, but it prevents disputes later. A straightforward letter from the parent saying they consent to you opening a custodial account in the child's name is usually enough. Keep a copy for your records.

If you have legal guardianship or custody of the grandchild, bring the court order. This clarifies your relationship and can speed up the process. If the child's parents are deceased or you have a formal custody arrangement, the bank will want to see that documentation.

How taxes work with custodial accounts

The money in a custodial account belongs to the grandchild for tax purposes, even though you control it. This means the interest the account earns is taxed to the child, not to you. In 2024, a minor can earn up to a certain amount of unearned income (interest, dividends) before they owe federal income tax. The exact threshold changes yearly, but it is typically around $1,300 to $1,400. If the account earns more than that, the child may owe taxes, and you will need to file a tax return for them.

This can actually be an advantage if you are saving a small amount. The child's tax rate is usually lower than yours, so the money grows more efficiently. But if you are saving a large amount and the interest is substantial, you will need to handle taxes carefully. Talk to a tax professional if the account balance is over $10,000 or if you expect significant interest income.

Custodial accounts also affect financial aid calculations. When a grandchild applies for college financial aid, the account counts as their asset, not yours. This can reduce the amount of aid they receive, because the formula assumes they should use their own money first. If financial aid is a concern, talk to a financial aid advisor before opening a large custodial account.

Joint accounts with adult grandchildren

If your grandchild is 18 or older, you can open a joint savings account instead of a custodial account. Both of you are on the account, both can deposit and withdraw money, and both have full access. This is simpler than a custodial account because there is no age-based transfer of ownership — the account just stays joint.

The downside is that a joint account gives your grandchild when ready access to all the money. If you are saving for a specific goal (college, a car, a house down payment) and you want to protect the money until they are ready, a custodial account is safer. With a joint account, they can withdraw everything tomorrow if they choose to.

Joint accounts also have different tax and legal implications. The money is considered owned by both of you, which can complicate things if you pass away or if there is a dispute. Some grandparents use a joint account as a temporary arrangement — to help an adult grandchild save for something specific — and then close it once the goal is reached.

What happens when the grandchild turns 18 or 21

When your grandchild reaches the age of majority, the custodial account automatically becomes theirs. The bank will send you a notice a few weeks before the transition date. After that date, you no longer have access to the account. You cannot see the balance, make withdrawals, or control how the money is spent. The grandchild can do all of those things.

Some banks allow you to request a copy of the final statement before the account transfers, so you have a record of what was in it. After the transfer, the account is theirs — you have no legal claim to the money, even if you contributed all of it. This is by design: the law treats custodial accounts as gifts to the child, not as loans or conditional savings.

If you want to continue saving for the grandchild after they turn 18, you can open a separate account in your own name and gift them money later, or you can help them open a new account and contribute to it. But you will not have control over that account the way you did with the custodial account.

Alternatives to custodial accounts

Some grandparents use other structures to save for grandchildren. A 529 education savings plan is a tax-advantaged account specifically for college expenses. You control the money, and it grows tax-free as long as it is used for may have access to education costs. If the grandchild 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 Uniform Transfers to Minors Act (UTMA) account is similar to a custodial account but allows you to transfer other assets besides cash — stocks, real estate, or intellectual property. The rules are the same: you control it until the child reaches 18 or 21, then it becomes theirs. Not all banks offer UTMA accounts, so you may need to work with a brokerage or investment firm.

You can also straightforward save the money in your own account and gift it to the grandchild when they turn 18, or when they need it for a specific purpose. This gives you complete control for as long as you want, but it does not give the grandchild the tax or legal benefits of an account in their name. The choice depends on your goals, the amount you are saving, and how much control you want to keep.

Frequently Asked Questions

Do I need the parents' permission to open a custodial account for my grandchild?

You do not legally need permission, but it is a good idea to tell the parents and get their agreement in writing. Some banks ask for a letter from the parents anyway. If the parents object, they can petition the court to close the account, so having their consent prevents problems later.

What happens to the account if I die before the grandchild turns 18?

The account stays open and the money stays in it. The bank will appoint a successor custodian (usually the child's parent) to manage the account until the child reaches 18 or 21. You can name a successor custodian when you open the account, or the bank will follow state law to choose one. The money does not go into your estate.

Can I withdraw money from a custodial account for my own expenses?

Legally, no. The money belongs to the grandchild, and you are only the custodian. Withdrawing money for your own use is considered theft or misappropriation. You can withdraw money to pay for the child's expenses (school, medical care, food, housing), but not for your own bills or personal needs.

Does a custodial account affect my grandchild's ability to get student loans?

Yes. The account counts as the grandchild's asset when they explore for federal student aid, which can reduce the amount of aid they receive. The impact depends on how much is in the account and the total value of their assets. If financial aid is important, talk to a financial aid advisor before opening a large custodial account.

Can I change my mind and close a custodial account?

You can close the account, but the money still belongs to the grandchild. You cannot keep it for yourself. You would need to transfer it to another account in the grandchild's name, or give it to them directly. Closing the account does not change who owns the money.