Yes, grandparents can open a savings account for a grandchild, but the account structure depends on the child's age

A grandparent can open a savings account in a grandchild's name at most banks and credit unions. The account type and who controls the money changes based on whether the child is a minor or an adult. For children under 18, the account will be a custodial account — the grandparent acts as custodian and manages the money until the child reaches the age of majority (usually 18 or 21, depending on your state). For adult grandchildren, the grandparent can open a joint account or simply give the grandchild the money to open their own account.

The most common route for young grandchildren is the Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account. These are custodial accounts that let a grandparent deposit money, and the child becomes the owner when they reach adulthood. The grandparent does not own the money — they manage it on the child's behalf.

Key Takeaways

  • A grandparent can open a custodial account for a minor grandchild at most banks and credit unions using the child's Social Security number.
  • In a custodial account, the grandparent manages the money but the child is the legal owner, and the money transfers to the child at age 18 or 21 depending on your state.
  • You will need the grandchild's Social Security number, proof of your identity, and proof of the child's identity or birth certificate to open the account.
  • Custodial accounts have tax implications — earnings above a certain amount are taxed at the child's rate, which is usually lower than the grandparent's rate.
  • If you want more control over how the money is spent, a trust or a 529 education savings plan may be better options than a custodial account.

What you need to open a custodial account

To open a custodial savings account, bring your government-issued ID (driver's license or passport) and the grandchild's Social Security number. Some banks also ask for the child's birth certificate or a copy of it. If you do not have the child's Social Security number, you can request one from the Social Security Administration using Form SS-5, though this takes a few weeks.

Different banks have different requirements. Some allow you to open the account online if you have the child's Social Security number; others require you to visit a branch in person. Call the bank ahead of time to confirm what documents they need and whether you can open the account remotely.

You will also need to decide what type of custodial account you want. Most banks offer UTMA or UGMA accounts, but not all states recognize both. Ask the bank which option is available in your state. The difference is minor for savings accounts — UTMA is slightly broader and is available in all 50 states, while UGMA is older and available in most but not all states.

How the account works once it is open

Once the account is open, you can deposit money whenever you want. The money earns interest at whatever rate the bank offers for that account type. You can withdraw money to pay for the child's expenses — school supplies, medical bills, sports equipment — but the money is legally the child's, not yours. If you withdraw money for your own use, that is considered a misuse of the account.

The grandchild cannot access the account until they reach the age of majority in your state. At that point, the account transfers to them automatically, and they have full control. They can withdraw all the money, leave it in the account, or move it elsewhere. You have no say in what they do with it once they turn 18 or 21.

Some grandparents worry about this loss of control. If you want to ensure the money is used for education or other specific purposes, a 529 education savings plan or a trust may give you more say in how the money is spent. A trust can include conditions — for example, the money is released only for college tuition, or in installments at certain ages — but setting up a trust costs more and requires legal help.

Tax treatment of custodial accounts

Custodial accounts have tax benefits compared to accounts in the grandparent's name. Interest and investment earnings in the account are taxed at the child's tax rate, which is usually much lower than the grandparent's rate. For 2024, the first $1,450 of unearned income (interest, dividends) is tax-free for a dependent child, and income between $1,451 and $2,900 is taxed at the child's rate.

Income above $2,900 is taxed at the parent's rate, not the child's rate. This rule is called the "kiddie tax" and applies to children under 18 (or under 24 if they are full-time students with limited income). If you are depositing large amounts and expecting significant interest earnings, talk to a tax professional about whether a custodial account makes sense for your situation.

The bank will send a 1099-INT form at the end of the year if the account earns more than $10 in interest. You will need this form to file taxes. Some grandparents include the child's earnings on their own tax return; others file a separate return for the child. A tax professional can advise you on which approach is best.

Custodial accounts versus other options

A custodial account is straightforward and works well if you want to save money for the grandchild's general use. But other options exist depending on your goals. A 529 plan is designed for education expenses and offers tax advantages if the money is used for college, trade school, or K-12 tuition. A Coverdell Education Savings Account is similar but has lower contribution limits. A trust gives you the most control over how and when the money is spent, but it costs more to set up and maintain.

If you want the grandchild to have access to the money sooner than age 18 or 21, a trust can specify that. If you want to leave money to multiple grandchildren and divide it among them, a trust can do that too. If you simply want to save money for the grandchild's future without worrying about taxes or control, a custodial account is usually the easiest choice.

Opening a custodial account at different types of banks

Most major banks (Chase, Bank of America, Wells Fargo, Citibank) offer custodial savings accounts. Credit unions often offer them as well, sometimes with lower fees or higher interest rates. Online banks like Ally, Marcus, and Discover also offer custodial accounts, though you will need to open them online and may not be able to deposit cash in person.

Interest rates vary widely. A traditional bank savings account might earn 0.01% annual interest, while an online bank might earn 4% to 5%. The difference matters if you are saving a large amount or over many years. Compare rates at a few banks before you decide where to open the account. You can move the account later if you find a better rate, though the process takes a few weeks.

What happens if the grandparent dies

If you open a custodial account and then pass away, the account belongs to the grandchild, not to your estate. The money does not go through probate and does not get divided among your heirs. The grandchild becomes the owner immediately, though if they are still a minor, a court may appoint a guardian to manage the account until they reach adulthood.

This is one reason some grandparents prefer a trust — a trust can specify what happens to the money if the grandparent dies, and it can name a successor trustee to manage the money. A custodial account has no such flexibility. If you want the money to go to someone other than the grandchild, or if you want conditions on how it is used, talk to an estate planning attorney.

Frequently Asked Questions

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

No, you do not need permission from the parent. However, it is a good idea to tell the parent what you are doing. The parent may have their own savings plan for the child, and coordinating can help avoid duplication or confusion later.

Can I change my mind and close the account if the grandchild is not using the money wisely?

No. Once the grandchild reaches adulthood, the account is theirs and you cannot close it or control how they spend the money. If you are concerned about how the money will be used, a trust with conditions may be a better option, though it requires legal setup.

What if the grandchild needs the money before age 18?

You can withdraw money from the account as the custodian if it is for the child's benefit — medical expenses, education, or other needs. You cannot withdraw it for your own use. If the child is an adult and needs the money, they can withdraw it themselves once the account transfers to them.

Can I open a custodial account if the grandchild lives in a different state?

Yes. You can open the account in your state or the grandchild's state. The rules are similar in most states, but UTMA and UGMA laws vary slightly. Ask the bank which state's laws apply to the account.

Is there a limit to how much I can put in a custodial account?

There is no limit on how much you can deposit into a custodial savings account itself. However, there are gift tax rules if you give large amounts of money. For 2024, you can give up to $18,000 per person per year without filing a gift tax return. Amounts above that require paperwork, though they usually do not result in taxes. Talk to a tax professional if you plan to deposit more than $18,000 in a single year.