Yes, grandparents can open savings accounts for grandchildren, but the account structure matters

Grandparents can open a savings account in a grandchild's name, but they cannot do it alone. The grandchild must be present, or a parent or legal guardian must consent and often co-sign. The account will be held in the grandchild's name, which means the grandchild owns the money legally—not the grandparent. This matters for taxes, financial aid, and what happens to the account if the grandparent dies.

Most banks allow grandparents to open accounts for grandchildren under 18, but the exact rules vary by bank and by state. Some banks require a parent present; others allow a grandparent to open the account if they bring a birth certificate and proof of the grandchild's Social Security number. A few banks will not open accounts for minors at all without a parent present.

The two main structures are a custodial account (where the grandparent is the custodian but the grandchild owns the money) and a joint account (where both grandparent and grandchild have access and ownership rights). A custodial account is simpler for long-term saving; a joint account gives the grandparent more control but creates tax and legal complications.

Key Takeaways

  • Grandparents can open accounts for grandchildren, but a parent or legal guardian must usually consent, and the account belongs to the grandchild, not the grandparent.
  • Custodial accounts are the most common structure for grandparent-funded savings and transfer to the grandchild at age 18 or 21, depending on state law.
  • Money in a grandchild's name counts against their financial aid may be able to access, so large balances can reduce college aid by up to 20 percent of the account value per year.
  • Joint accounts give grandparents access but create tax liability for the grandparent on interest earned and may complicate the grandchild's credit if the account goes unpaid.
  • The bank, not the grandparent, decides who can open the account and what documents are required—call ahead to confirm your bank's policy for minors.

Custodial accounts: the standard way grandparents fund grandchildren's savings

A custodial account is an account opened in the grandchild's name, with the grandparent (or another adult) named as custodian. The grandparent manages the account and makes deposits, but the grandchild is the legal owner. The grandparent cannot use the money for themselves—it must be spent on the grandchild's benefit, such as education, medical care, or living expenses.

Custodial accounts are governed by either the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA), depending on your state. Both work the same way in practice: the account transfers to the grandchild automatically when they reach the age of majority, which is 18 in most states but 21 in a few. Once the grandchild reaches that age, they own and control the account outright, and the grandparent has no further say.

To open a custodial account, you will need the grandchild's birth certificate, Social Security number, and usually a parent's consent. Some banks require a parent to be present; others do not. Call your bank before you visit to confirm what documents and people they need.

Custodial accounts are taxed in the grandchild's name, not the grandparent's. This is usually a tax advantage: the first $1,250 of earnings (as of 2024) is tax-free, and earnings above that are taxed at the grandchild's rate, which is typically lower than the grandparent's. However, the account counts against the grandchild's financial aid may be able to access, which can reduce college aid significantly.

Joint accounts: faster access, but more complications

A joint account lists both the grandparent and grandchild as owners. Both can deposit and withdraw money, and both have equal legal rights to the account. Joint accounts are simpler to set up than custodial accounts—most banks treat them like any other account—but they create tax and legal problems that custodial accounts avoid.

The main risk is that the grandparent's creditors can reach a joint account. If the grandparent is sued, declares bankruptcy, or owes back taxes, the creditor can freeze or seize the joint account, even though the grandchild owns half of it. A custodial account is protected from the grandparent's creditors because the grandparent is not the owner.

Joint accounts are also taxed differently. Interest earned on the account is taxed to whoever deposited the money, which is usually the grandparent. This means the grandparent pays taxes on the earnings, not the grandchild, eliminating the tax advantage of a custodial account. If the grandparent dies, the account passes to the grandchild automatically (because of survivorship rights), but this can complicate the grandparent's estate and may trigger unexpected taxes.

Joint accounts also count against financial aid, just like custodial accounts, so there is no advantage there either.

How money in a grandchild's account affects financial aid

Any account in a grandchild's name—whether custodial or joint—counts as the student's asset on the Free Application for Federal Student Aid (FAFSA). Student assets reduce financial aid may be able to access by up to 20 percent of the account balance per year. This means a $10,000 account could reduce aid by $2,000 per year.

Parent-owned accounts (accounts in the parent's name, not the grandchild's) are treated more favorably and reduce aid by only 5.64 percent. This is one reason some grandparents choose to keep savings in their own name and gift the money to the grandchild after high school, rather than opening an account in the grandchild's name.

If you are saving for college, ask the college's financial aid office whether opening an account in the grandchild's name makes sense for your situation. The tax savings from a custodial account may not outweigh the aid reduction, depending on how much you are saving and what the grandchild's family income is.

What documents you will need to bring to the bank

Requirements vary by bank, but most will ask for the grandchild's birth certificate and Social Security number. Some banks also require proof of the grandchild's address (such as a utility bill or lease in the parent's name) and a parent's ID and consent. A few banks require a parent to be present in person.

Call your bank before you visit and ask specifically: "Can a grandparent open a custodial account for a grandchild without a parent present?" The answer will tell you whether you need to coordinate with the parent or whether you can handle it alone. If the bank says no, ask whether a parent can consent by phone or email, or whether they must be there in person.

Bring your own ID as well. The bank will verify your identity before opening any account.

What happens to the account when the grandparent dies

In a custodial account, the grandchild is the owner, so the account passes to the grandchild automatically. The grandparent's role as custodian ends, but the account itself does not close. If the grandchild is still a minor, a parent or court-appointed guardian will take over managing the account until the grandchild reaches the age of majority.

In a joint account, the account also passes to the grandchild automatically because of survivorship rights. However, the grandparent's estate may owe taxes on the account, and the grandchild may face unexpected tax bills if the account earned significant interest.

If you want the account to go to someone other than the grandchild—such as another grandchild or a charity—you cannot use a custodial or joint account. You would need to name the account in your will or set up a trust, which requires a lawyer. Talk to an estate attorney if you want to leave money to multiple grandchildren or have complex wishes about how the money should be used.

Alternatives: keeping savings in your own name

Some grandparents choose to keep savings in their own name and gift the money to the grandchild later, or name the grandchild as a beneficiary in their will. This approach avoids the financial aid problem entirely and keeps the money protected from the grandchild's creditors or legal problems.

The downside is that the money is taxed in the grandparent's name, and the grandparent must remember to update their will or beneficiary designations if they want the money to go to the grandchild. If the grandparent dies without a will, the money goes to the grandparent's estate and may not reach the grandchild at all.

Another option is a 529 college savings plan, which is owned by the account holder (usually a parent or grandparent) but designated for a specific grandchild's education. 529 plans have tax advantages and do not count as heavily against financial aid as accounts in the grandchild's name. However, the money must be used for education, or the grandchild will owe taxes and penalties on the earnings.

Frequently Asked Questions

Can I open a savings account for a grandchild if the parents do not want me to?

No. A parent or legal guardian must consent to open an account in a minor's name. If the parents object, you cannot open a custodial account. You can open an account in your own name and name the grandchild as a beneficiary in your will, but that is not the same as an account the grandchild can use now.

What if the grandchild's parents are divorced or one parent is not involved?

The bank will usually accept consent from one parent, but some banks require both parents to sign. Call your bank and ask. If one parent has sole custody, that parent's consent is enough. If custody is shared, ask whether the bank needs both signatures or just one.

Can I withdraw money from a custodial account for my own use?

No. The money in a custodial account belongs to the grandchild, and the grandparent (as custodian) can only spend it on the grandchild's benefit. Withdrawing money for yourself is illegal and can result in civil or criminal charges. If you need access to your own money, open a joint account instead, but understand the tax and creditor risks.

Does the grandchild need to know about the account?

Not while they are young, but they will find out when they turn 18 or 21 and the account transfers to them. Some grandparents tell the grandchild about the account early so they understand the gift; others keep it a surprise. There is no legal requirement either way, but telling the grandchild can help them understand the value of saving.

Can I open multiple accounts for the same grandchild?

Yes. You can open a custodial account and a 529 plan, or multiple custodial accounts at different banks. However, each account counts against financial aid separately, so having multiple accounts does not reduce the aid impact. The bank may also have limits on how many accounts one person can hold.