Yes, a newborn can have a bank account, but it must be opened and managed by a parent or legal guardian
A newborn cannot sign documents or enter into contracts, so they cannot open an account themselves. Instead, a parent or court-appointed guardian opens a custodial account — a real bank account in the child's name, with an adult authorized to manage it until the child reaches the age of majority (usually 18 or 21, depending on your state and the account type).
The account belongs to the child from day one. Money deposited into it is legally the child's money, not the parent's. This matters for taxes, financial aid, and inheritance. The parent acts as custodian — they control the account while the child is a minor, but they cannot simply withdraw the money for personal use.
Most banks and credit unions offer custodial accounts. You will need the child's Social Security number, a birth certificate or other proof of the child's identity, and your own ID. Some institutions let you open one online; others require an in-person visit.
Key Takeaways
- A custodial account is opened in the child's name by a parent or guardian and belongs to the child, not the parent.
- You will need the child's Social Security number and birth certificate to open the account at most banks or credit unions.
- Money in a custodial account counts as the child's asset for financial aid and tax purposes, which can affect both.
- The account transfers to the child's full control at age 18 or 21, depending on your state and the account type.
- A UTMA or UGMA account is a common custodial structure that lets you invest the money, not just hold it in savings.
Custodial accounts versus UTMA and UGMA accounts
A custodial account is a general term for any account a minor owns but an adult manages. Most banks offer a basic custodial savings account — money sits in a savings account earning interest, and the parent controls withdrawals.
A UTMA account (Uniform Transfers to Minors Act) or UGMA account (Uniform Gifts to Minors Act) is a specific legal structure for a custodial account. The difference matters because UTMA and UGMA accounts can hold investments — stocks, bonds, mutual funds — not just cash. They are offered by brokerages and some banks. UTMA is newer and available in all 50 states; UGMA is older and not available in all states, but both work the same way for most purposes.
If you plan to deposit money and leave it untouched for years, a UTMA or UGMA account at a brokerage might grow faster than a savings account. If you want a simple place to deposit birthday money and occasional gifts, a basic custodial savings account at your bank is simpler and sufficient.
What happens when the child turns 18 or 21
The age at which the account transfers to the child's control depends on your state and the account type. With a basic custodial account, your bank's rules determine the age — often 18. With a UTMA or UGMA account, your state law determines it — most states say 21, but some say 18, and a few allow you to choose.
When the child reaches that age, the account is theirs. You no longer have authority to manage it or withdraw from it. The child can do whatever they want with the money — spend it, invest it, or leave it alone. You cannot prevent them from accessing it, and you have no legal claim to it.
This is why some parents choose to discuss the account with their child before they turn 18, especially if the money is meant for college or a specific goal. Once they have control, the decision is theirs.
Tax implications of a custodial account
Money in a custodial account is the child's income for tax purposes. If the account earns interest or investment gains, those earnings may be taxable. The tax rate depends on the child's total income and your state's rules.
For 2024, a dependent child's first $1,350 of unearned income (interest, dividends, capital gains) is usually not taxed. Income above that is taxed at the child's rate, which is typically lower than the parent's rate. This can be an advantage — money grows with less tax drag. However, if the account grows large, you may owe taxes on the earnings.
You will receive a 1099 form from the bank or brokerage if the account earns more than a certain amount (usually $10 in interest). You will need to report this on the child's tax return. A tax professional can advise you on whether a return is required and how to file it.
How a custodial account affects financial aid
Money in a custodial account counts as the child's asset when they apply for federal financial aid (FAFSA). The formula assumes a higher percentage of the child's assets will go toward college than the parent's assets — roughly 20% of the child's assets versus 5.6% of the parent's assets.
This means a large custodial account can reduce the amount of need-based aid the child receives. If you are planning to save for college and expect the child to receive financial aid, a custodial account may not be the best choice. A 529 plan (a college savings plan) or a Coverdell ESA (an education savings account) are often better because they are treated more favorably in the financial aid calculation.
If you do not expect financial aid to be a factor — because your income is high or you plan to pay for college out of pocket — a custodial account is a straightforward option.
Where to open a custodial account
Most banks and credit unions offer custodial savings accounts. You can open one at the institution where you already bank, or you can shop around. Compare interest rates, minimum balances, and fees.
If you want to invest the money in stocks or mutual funds, you will need a brokerage. Major brokerages like Fidelity, Vanguard, Charles Schwab, and E*TRADE all offer UTMA and UGMA accounts. Some have no minimum balance; others require $1,000 or more to start.
To open an account, you will typically need the child's Social Security number, a birth certificate or passport, and your own ID. Some institutions let you start online; others require you to visit a branch or mail in documents. Call ahead or check the website to see what the institution requires.
What you cannot do with a custodial account
As the custodian, you manage the account, but you do not own the money. You cannot withdraw it for your own use — to pay your bills, buy yourself a car, or cover personal expenses. Doing so is a misuse of the account and can have legal and tax consequences.
You can use the money for the child's benefit — to pay for their education, medical care, housing, or other needs. But if you withdraw money and spend it on yourself, you are taking the child's money, and the child (or a court) can hold you accountable.
You also cannot change the beneficiary. The account is in the child's name, and it stays that way. If you want to save for another child, you open a separate account for that child.
Frequently Asked Questions
Do I need to open a custodial account right after the baby is born?
No. You can open one at any time — when the baby is born, when they are five years old, or later. There is no deadline. If you want to start saving gifts or money from family members, opening an account early makes sense. If you have not thought about it yet, you can open one whenever you are ready.
What if I want to save for college without affecting financial aid?
A 529 plan or Coverdell ESA is usually better than a custodial account if financial aid is a concern. These accounts are treated more favorably in the financial aid calculation. Talk to a tax professional or financial advisor about which option fits your situation.
Can a grandparent or other relative open a custodial account for the child?
Yes. Any adult can open a custodial account for a minor, not just a parent. A grandparent, aunt, uncle, or family friend can open one and deposit money into it. The child still owns the money; the adult who opened it is the custodian and manages it.
What happens if the custodian dies before the child turns 18?
The account does not disappear. The money belongs to the child. A court may appoint a new custodian (often the other parent or a family member), or the account may be transferred to the child's legal guardian. The specific process depends on your state and the account type. Name a successor custodian when you open the account if possible.
Can the child access the account before age 18 or 21?
No, not without the custodian's permission. The custodian controls withdrawals until the child reaches the age of majority. Some accounts allow the custodian to give the child limited access (like a debit card), but the child cannot empty the account on their own until they legally own it.