Yes, grandparents can open a bank account for a grandchild, but the account structure depends on the child's age and the grandparent's role

Grandparents can open a bank account in a grandchild's name, but the rules differ sharply depending on whether the child is a minor or an adult. For minors, you will open 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 adult grandchildren, you cannot open an account in their name without their presence and consent; you can only open a joint account together, or open your own account and name them as a beneficiary.

The most common route for grandparents is the custodial account, which lets you fund the account, manage the money, and teach the grandchild about banking — all while the funds legally belong to the child. This matters for taxes and for financial aid later, because the money is the child's asset, not yours.

Key Takeaways

  • A custodial account for a minor grandchild requires the child's Social Security number, your ID, and proof of address, but the child does not need to be present at the bank.
  • Custodial accounts come in two types — UTMA and UGMA — and the money transfers to the child automatically when they reach the age set by your state, usually 18 to 21.
  • You can deposit money, withdraw it for the child's benefit, and manage investments, but you cannot use the money for yourself or treat it as your own.
  • Once the child reaches the age of majority, the account becomes theirs to control, and you lose all authority over it.
  • If you want the child to inherit money after you die rather than receive it at 18, a trust or a payable-on-death account may work better than a custodial account.

What you need to open a custodial account for a minor

To open a custodial account, bring your government-issued ID, proof of your current address (usually a utility bill or lease), and the child's Social Security number. The child does not need to be present. Most banks and credit unions offer custodial accounts, though the exact forms and fees vary by institution.

You will need to decide whether you want a savings account, a money market account, or an investment account (such as a custodial brokerage account). A savings account is the simplest and safest; a brokerage account lets you invest in stocks and mutual funds but carries more risk. Ask the bank or credit union what minimum balance they require and whether there are monthly fees.

Some banks waive fees for custodial accounts or offer higher interest rates on savings. Shop around — a credit union near you may have better terms than a national bank, and online banks sometimes offer higher rates on savings accounts.

UTMA and UGMA accounts: the two types of custodial accounts

Most custodial accounts are either UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) accounts. The difference matters mainly for what you can deposit and when the child takes control.

UGMA accounts are older and more limited — you can deposit cash and securities (stocks, bonds, mutual funds), but not real estate or other property. UTMA accounts are newer and broader — you can deposit almost anything, including real estate, artwork, and intellectual property. Both types transfer to the child automatically at the age set by your state's law, which is usually 18, 21, or 25 depending on the state and the account type.

When you open the account, the bank will tell you which type they offer and what age the child will take control. If your state allows you to choose the age, you can sometimes delay the transfer until the child is older — for example, choosing 21 instead of 18 — but you cannot extend it indefinitely. Once the child reaches that age, the account is theirs, and you have no further say in how the money is spent.

What you can and cannot do with a custodial account

As the custodian, you can deposit money, withdraw it, and manage investments. You can withdraw money to pay for the child's expenses — school, medical care, sports, music lessons — anything that benefits the child. You can also reinvest earnings or let them grow.

What you cannot do is use the money for yourself or for expenses you would pay anyway. For example, you cannot withdraw money to pay your own mortgage or use it to cover the child's share of family groceries if you were already buying groceries. The money must be spent for the child's benefit, not your own.

You also cannot transfer the account to yourself or change who it belongs to. The child is the owner; you are the manager. If you die before the child reaches the age of majority, the account passes to the child or to a court-appointed guardian, depending on your state's law. Some banks let you name a successor custodian in advance, which is worth doing.

Tax consequences of a custodial account

Because the money belongs to the child, not you, the child is responsible for taxes on any earnings (interest, dividends, capital gains). For 2024, the first $1,450 of unearned income is tax-free for a dependent child, and the next $1,450 is taxed at the child's rate (usually lower than yours). Income above that is taxed at your rate. These thresholds change yearly, so check the IRS website for the current year.

This can be a tax advantage if you have high income — the earnings grow in the child's name at a lower tax rate. However, it also means the money counts as the child's asset if they later apply for financial aid for college. Custodial accounts reduce financial aid may be able to access more than parent-owned accounts do, so if college aid is a concern, talk to a financial aid advisor before opening one.

Alternatives if you want different control or timing

If you want the child to inherit money after you die but do not want them to control it at 18, a custodial account may not be the right choice. Instead, you can name the child as a beneficiary on a payable-on-death (POD) account or a transfer-on-death (TOD) account. The money passes to them outside of probate, but you control it while you are alive, and you can change the beneficiary anytime.

Another option is a trust. A revocable living trust lets you name a trustee (yourself, a family member, or a professional) to manage the money for the child after you die, and you can set the age at which they receive it — 25, 30, or older. Trusts are more complex and costly to set up, but they give you more control over timing and how the money is used.

For adult grandchildren, you cannot open an account in their name without them. You can open a joint account together, which gives you both equal access and control. You can also open your own account and name them as a beneficiary, so the money passes to them when you die.

What happens when the grandchild reaches the age of majority

On the date set by your state's law — usually the child's 18th, 21st, or 25th birthday — the custodial account becomes the child's to control. You lose all authority. The child can withdraw the money, close the account, or leave it open. You cannot stop them, and you have no say in what they do with it.

This is why some grandparents prefer a trust, where you can set conditions on when and how the money is used. But a trust is more expensive and complex. If you open a custodial account, accept that the child will have full control at the age of majority.

Before that date arrives, consider talking to the child (if they are old enough) about the account and what you hope they will do with the money. Some grandparents use the account as a teaching tool, letting the child help make decisions about savings or investments as they get older.

Frequently Asked Questions

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

No, you do not need permission from the parents. The account is legal as long as you are the grandparent or another adult relative. However, it is good practice to tell the parents what you are doing, especially if you plan to make large deposits or if the child's parents are managing the child's finances.

Can I open a custodial account if I am not the child's legal guardian?

Yes. Custodial accounts do not require guardianship. Any adult — grandparent, aunt, uncle, family friend — can open one. The bank will ask for your ID and relationship to the child, but they will not ask for court documents.

What if the grandchild's parents get divorced or one parent dies?

The custodial account remains in the child's name and is not affected by changes in the parents' situation. You continue to manage it as the custodian. If you die before the child reaches the age of majority, the account may go to the child's parents or to a court-appointed guardian, depending on your state's law and whether you named a successor custodian.

Can I withdraw money from the account to pay for the child's college tuition?

Yes, you can withdraw money to pay for tuition, room and board, books, and other education expenses. However, the money counts as the child's asset for financial aid purposes, which may reduce the amount of aid they receive. Talk to the college's financial aid office before withdrawing large amounts.

What if I change my mind and want to close the account?

You can close the account anytime while you are the custodian. The money goes to the child (or to their parents if the child is very young). You cannot reclaim the money as your own — it belongs to the child. If you want to stop funding the account but keep it open, you can simply stop making deposits.