Yes, a grandparent can open a bank account for a grandchild, but the rules depend on the child's age

A grandparent can open a bank account in a grandchild's name, but banks treat this differently depending on whether the child is a minor or an adult. For children under 18, you will open what's called a custodial account — the account belongs to the child, but you control it until they reach the age of majority (usually 18 or 21, depending on your state and the account type). For grandchildren who are already adults, they must open their own account, though you can help them do it.

The most common route for minors is a Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account. These are custodial accounts that let you deposit money for the child's benefit while you manage it. When the child reaches the age set by your state's law, the account transfers to them automatically and they take full control.

Key Takeaways

  • A grandparent can open a custodial account (UTMA or UGMA) for a minor grandchild using the child's Social Security number and the grandparent's identification.
  • You will need the child's full legal name, date of birth, and Social Security number; if you don't have the SSN, you can request it from the child's parent or guardian.
  • The account belongs to the grandchild, but you control deposits and withdrawals until they reach the age of majority, which varies by state (usually 18 to 21).
  • Money in a custodial account counts as the child's asset for financial aid purposes, which may reduce the amount of aid they receive in college.
  • Adult grandchildren must open their own account, but you can accompany them to the bank and help with the process.

What you need to open a custodial account for a minor

Banks require specific documents to open a custodial account. You will need the grandchild's full legal name, date of birth, and Social Security number. You will also need to show your own government-issued photo ID (a driver's license or passport). Some banks also ask for proof of address, such as a recent utility bill or lease.

If you don't have the child's Social Security number, contact the child's parent or legal guardian and ask them to provide it. The SSN is necessary because the account is in the child's name, not yours. If the child doesn't have an SSN yet, you can apply for one through the Social Security Administration before opening the account, though this adds time to the process.

Different banks have different minimum deposit requirements for custodial accounts — some require as little as $25 to open, while others ask for $100 or more. Call ahead or check the bank's website to confirm what that bank needs before you visit.

How the account works while you are the custodian

Once the account is open, you are the custodian and the child is the account owner. You can deposit money whenever you want, and you can withdraw money for the child's benefit — meaning for expenses that directly support the child, such as education, medical care, or living expenses. You cannot withdraw money for your own use or for expenses that are not the child's responsibility.

The account earns interest or investment returns depending on the type of account you choose. A savings account earns a small amount of interest. A custodial investment account (such as a brokerage account) can hold stocks, bonds, or mutual funds and may earn more over time, but it also carries more risk. Most grandparents start with a simple savings account.

The child's name and Social Security number appear on the account, so the bank reports any interest or investment income to the IRS under the child's tax ID. Depending on how much income the account earns, the child may need to file a tax return. For 2024, a dependent child with unearned income (such as interest) over $1,300 generally must file a return, though this threshold changes yearly.

What happens when the grandchild reaches the age of majority

When the child reaches the age set by your state's law — typically 18 or 21 — the account automatically transfers to them. They become the sole owner and you lose all control. You cannot withdraw money, make deposits, or access the account without their permission. This is true even if you disagree with how they spend it.

The exact age varies by state and by account type. UTMA accounts usually transfer at 21, while UGMA accounts may transfer at 18. Some states let you choose the transfer age when you open the account. Check with your bank or your state's laws to confirm the age for your specific account.

Before the transfer happens, consider having a conversation with the grandchild about the money and what it is meant for. If the child is old enough to understand, explain that the account was set aside for their education, a car, or another goal. This helps them make thoughtful decisions once they take control.

Tax and financial aid consequences of a custodial account

Money in a custodial account is treated as the child's asset, not yours, for tax and financial aid purposes. This has two main effects. First, if the account earns income (interest or investment gains), that income is taxed at the child's tax rate, which is usually lower than yours. Second, when the child applies for college financial aid, the account counts as their asset, which may reduce the amount of aid they receive.

The financial aid impact can be significant. The Free Application for Federal Student Aid (FAFSA) counts student-owned assets more heavily than parent-owned assets when calculating how much aid a student should receive. If you have $10,000 in a custodial account for a grandchild, that may reduce their financial aid by several hundred dollars per year. If you have the same money in your own savings account, it may have little or no impact on their aid.

If you are concerned about this, talk to a tax professional or financial advisor before opening the account. Some families choose to give money directly to the child's parent instead, or to wait until after the child has completed college to transfer assets.

Alternatives to a custodial account

If you want to set aside money for a grandchild but want to avoid the financial aid impact, you have other options. You can open a regular savings account in your own name and simply tell your family that the money is for the grandchild. You keep full control and the money does not count as the child's asset for financial aid. The downside is that if something happens to you, the money becomes part of your estate and may not go to the grandchild as you intended.

Another option is a 529 college savings plan, which is a tax-advantaged account designed specifically for education expenses. Money in a 529 plan counts less heavily against financial aid than money in a custodial account, and it grows tax-free if used for college. However, 529 plans have restrictions — the money must be used for education, or the child will owe taxes and penalties on the earnings if they withdraw it for other reasons.

You can also give money directly to the child's parent and ask them to open an account or set it aside. This keeps the money in the parent's name and under their control, which may be simpler if you want to avoid the legal structure of a custodial account.

Opening an account for an adult grandchild

If your grandchild is already 18 or older, they must open their own account. Banks require the account owner to be present and to provide their own identification. You can accompany them to the bank and help them understand the options, but you cannot open the account without them.

The adult grandchild will need a government-issued photo ID (driver's license or passport) and their Social Security number. Some banks also ask for proof of address. Once the account is open, you can deposit money into it if you want, but you will not have access to withdraw or manage it unless the grandchild adds you as an authorized user or joint owner.

Frequently Asked Questions

Do I need the child's parent's permission to open a custodial account?

Banks do not legally require the parent's permission, but it is a good idea to tell the parent what you are doing. If the child's parents are divorced or there is a custody dispute, the parent with legal custody may object. Checking first prevents conflict and ensures the account is set up correctly.

What if I don't have the child's Social Security number?

Contact the child's parent or legal guardian and ask for it. If the child does not have an SSN yet, you can apply for one through the Social Security Administration website or your local Social Security office. The application takes a few weeks, so plan ahead if you want to open the account soon.

Can I withdraw money from the account for my own expenses?

No. The money in a custodial account belongs to the child, and you can only withdraw it for the child's benefit. Using it for your own expenses is illegal and can result in tax penalties or legal action from the child or their parents.

What happens if the grandchild dies before reaching the age of majority?

The money in the account becomes part of the child's estate and is distributed according to the child's will or your state's inheritance laws. It does not automatically go back to you. If you want to ensure money goes to a specific person if the grandchild dies, you may need to set up a trust or name a beneficiary through other means — ask a lawyer about your options.

Can I change my mind and close the account?

You can close the account while you are the custodian, but the money still belongs to the child. You cannot keep it for yourself. You would need to transfer the money to another account in the child's name or give it to the child's parent to hold. Once the child reaches the age of majority and takes control, you cannot close the account without their permission.