Yes, you can open a bank account for your newborn, but the account must be in your name as the custodian

You cannot open an account solely in your newborn's name because minors cannot enter into legal contracts, including the account agreement with a bank. Instead, you open what is called a custodial account or UTMA/UGMA account (Uniform Transfers to Minors Act or Uniform Gifts to Minors Act, depending on your state). You are the legal custodian, which means you control the account, make deposits and withdrawals, and manage the money until your child reaches the age of majority—typically 18 or 21, depending on your state and the account type.

The account belongs to your child, not to you. Any money in it is considered their asset for tax purposes. You can deposit money, set up automatic transfers, and let the account grow. When your child turns 18 or 21, the account transfers to them automatically, and they gain full control.

Key Takeaways

  • You open a custodial account in your name as the custodian, with your child named as the minor beneficiary; the account legally belongs to your child even though you control it.
  • Most banks and credit unions offer custodial savings accounts with no minimum balance or low minimums, though some require you to already be a customer.
  • You will need your child's Social Security number, birth certificate, and proof of your identity and address to open the account.
  • Money in a custodial account counts as your child's asset if they file taxes, which may affect financial aid later; a regular savings account in your name avoids this but offers no tax advantage.
  • At age 18 or 21, depending on your state, your child takes full control of the account and you have no further say in how the money is used.

What documents you need to open a custodial account

Bring your child's Social Security number and birth certificate to the bank. If your child does not yet have a Social Security number, you can apply for one at the Social Security Administration office or online at ssa.gov. The process takes about two weeks. Some banks will let you open the account and add the Social Security number later, but most require it upfront.

You will also need to show your own identity and proof of address. A driver's license or state ID works for identity. For proof of address, bring a recent utility bill, lease, mortgage statement, or bank statement in your name. Some banks accept a government-issued ID with your current address printed on it.

Call ahead to confirm what your specific bank requires. Requirements vary by institution, and some banks have different rules for online versus in-person account opening.

Types of custodial accounts and how they differ

A custodial savings account is the simplest option. You deposit money, it earns a small amount of interest, and you withdraw it whenever you need to. The bank holds the money and pays you interest based on the account's annual percentage yield (APY). Interest rates vary widely—some accounts earn less than 0.01% APY, while high-yield savings accounts may offer 4% to 5% APY. The higher the rate, the more your money grows, but rates change frequently, so check current rates at the banks you are considering.

A UTMA or UGMA account is a custodial account with tax advantages. Money your child earns (such as from a job or investment income) is taxed at your child's rate, which is usually lower than yours. However, the first portion of unearned income (such as interest or dividends) may be taxed at your rate depending on your child's age and the amount. These accounts are often used for longer-term savings or investments, not just cash deposits. Some banks and brokerages offer UTMA/UGMA accounts that hold stocks, bonds, or mutual funds in addition to cash.

A 529 college savings plan is a separate type of account designed specifically for education expenses. Money grows tax-free if used for tuition, room and board, books, or other may have access to education costs. If you withdraw money for non-education purposes, you pay taxes and a 10% penalty on the earnings (though not the principal). A 529 is more restrictive than a general custodial account but offers stronger tax benefits if your goal is saving for college.

Where to open a custodial account

Most banks and credit unions offer custodial savings accounts. Large national banks like Chase, Bank of America, Wells Fargo, and Citibank all have them. Credit unions often have lower fees and higher interest rates on savings accounts. Online banks like Ally, Marcus, and Discover typically offer higher APY on savings accounts than brick-and-mortar banks, though you cannot deposit cash in person.

Some banks require you to be an existing customer before you can open a custodial account for your child. Others let you open one without an existing relationship. Call or check the bank's website to confirm their policy. If you are opening an account at a bank where you already have an account, the process is usually faster.

If you want to invest the money in stocks, bonds, or mutual funds rather than keep it in a savings account, you will need to open a UTMA/UGMA account at a brokerage firm such as Fidelity, Vanguard, Charles Schwab, or E-Trade. These firms also hold cash, but their main function is managing investments.

How custodial accounts affect taxes and financial aid

Money in a custodial account is considered your child's asset for tax purposes. If your child has unearned income (such as interest or investment gains) above a certain threshold, they may need to file a tax return. The threshold changes each year. For 2024, a dependent child with more than $1,300 in unearned income must file. Check the IRS website or ask a tax professional for the current year's threshold.

When your child applies for financial aid for college, the Free Application for Federal Student Aid (FAFSA) counts assets in a custodial account as the student's resources. This can reduce the amount of aid they receive because the government assumes your child should use their own money first. Money in your name (not in a custodial account) is counted differently and may have less impact on aid. If you are planning to save for college and want to minimize the effect on financial aid, talk to a financial advisor about whether a custodial account or a 529 plan makes more sense for your situation.

What happens when your child turns 18 or 21

The age at which your child takes control of the account depends on your state and the type of account. Most states use age 18 for UTMA accounts and age 21 for UGMA accounts, but this varies. Check your state's law or ask the bank when you open the account.

When your child reaches that age, the account transfers to them automatically. You no longer have any legal right to the money or say in how it is used. Your child can withdraw it all at once, spend it, invest it, or leave it in the account. There is no requirement that they use it for education, housing, or any particular purpose. If you want to ensure the money is used for a specific goal, a custodial account is not the right tool—you would need to set up a trust with conditions, which requires a lawyer.

Alternatives if a custodial account does not fit your needs

If you want to save money for your child but do not want them to have full control at age 18 or 21, you can open a regular savings account in your own name. The money is yours legally, not your child's, so it does not count as their asset for financial aid purposes. The downside is that there is no tax advantage, and if something happens to you, the money may not automatically go to your child unless you have named them as a beneficiary in your will.

A trust account gives you more control over when and how your child receives the money. You can specify that they receive it at age 25, or only for certain purposes like education or a home purchase. Setting up a trust requires a lawyer and costs more than opening a bank account, but it is an option if you want conditions on the money.

A 529 plan is another alternative if your primary goal is saving for education. It offers tax benefits and you retain control over the money even after your child turns 18. You decide when and how much to withdraw for education expenses.

Frequently Asked Questions

Do I need a Social Security number for my newborn before opening an account?

Most banks require a Social Security number to open a custodial account. You can apply for one at the Social Security Administration office or online at ssa.gov. The process takes about two weeks. Some banks will let you open the account and provide the number later, but this is less common—call ahead to ask.

Can I withdraw money from my child's custodial account whenever I want?

Yes, as the custodian you can withdraw money at any time. However, the money must be used for your child's benefit—for example, food, housing, education, or medical care. Using custodial account money for your own personal expenses is not legally permitted, though enforcement is difficult. If you need access to money for your own use, a regular savings account in your name is a better choice.

What is the difference between a custodial account and a 529 plan?

A custodial account is a general savings or investment account that belongs to your child. You control it until they turn 18 or 21, and then they can use the money for anything. A 529 plan is designed specifically for education and offers tax benefits if the money is used for tuition or may have access to education expenses. If you withdraw from a 529 for non-education purposes, you pay taxes and a 10% penalty on the earnings.

Will a custodial account reduce my child's financial aid for college?

Yes. The FAFSA counts assets in a custodial account as the student's resources, which can reduce the amount of federal financial aid they receive. Money in your name is counted differently and may have less impact. If minimizing the effect on financial aid is important, ask a financial advisor whether a 529 plan or other strategy might work better for your situation.

What happens if I die before my child turns 18?

The custodial account does not automatically transfer to another person. You should name a successor custodian in your will or in a separate document when you open the account. Ask your bank if they allow you to name a successor custodian. If you do not, the account may go through probate, which delays access to the money and can be expensive. Naming a successor custodian is a simple step that protects your child.