Yes, you can open a savings account for your grandchild, but the rules depend on their age and your relationship to them

If your grandchild is under 18, you have two main paths: open a custodial account in their name with you as the custodian, or open a joint account where both of you are owners. A custodial account is legally theirs from day one, but you control it until they reach the age of majority (18 or 21, depending on your state). A joint account is simpler to set up but gives you both equal access to the money right away. If your grandchild is 18 or older, they can open their own account without you, though you can still help them do it.

Banks have different rules about who can open accounts and what paperwork they need. Some require the grandchild to be present in person; others let you open a custodial account on your own. You will need the grandchild's Social Security number either way, and the bank will ask for proof of your identity and relationship.

Key Takeaways

  • A custodial account is owned by your grandchild but controlled by you until they reach adulthood, and the money is legally theirs from the start.
  • A joint account gives you both access to the money immediately, but your grandchild can withdraw funds without your permission once they are added.
  • You will need your grandchild's Social Security number, your own ID, and proof of your relationship to open either type of account.
  • Custodial accounts have tax advantages for smaller balances but may affect your grandchild's financial aid if they go to college.
  • Some banks require your grandchild to be present in person; others do not, so call ahead to ask what your bank requires.

Custodial accounts: how they work and what happens when your grandchild turns 18

A custodial account is set up under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), depending on your state. You are the custodian, which means you manage the account and make decisions about the money. Your grandchild is the owner, which means the account is theirs legally and for tax purposes. You cannot use the money for yourself, and you cannot take it back once it is deposited.

When your grandchild turns 18 or 21 (depending on your state), the account automatically transfers to them. They gain full control and can withdraw all the money, spend it however they want, or leave it in the account. You have no say in what happens after that point. This is a real consideration if you are saving for college but your grandchild might want to use the money for something else.

Custodial accounts have a tax advantage for smaller balances. The first portion of earnings (the amount changes each year, but is usually around $1,200) is not taxed. Earnings above that are taxed at your grandchild's rate, which is typically lower than yours. However, if the account grows large, some of the earnings may be taxed at your rate instead, which is called the "kiddie tax."

Joint accounts: simpler setup, but shared access from day one

A joint account is faster to open because there are fewer rules. You and your grandchild are both owners, and both of you can deposit and withdraw money. You do not need to wait for them to turn 18 to hand over control—they already have it. This can be useful if your grandchild is a teenager and you want them to learn to manage money, or if you need them to be able to access funds in an emergency.

The downside is that your grandchild can withdraw the entire balance without telling you, even if you opened the account to save for their college or future. There is no legal protection once they are added to the account. Additionally, joint accounts do not have the same tax advantages as custodial accounts, so any earnings are taxed at your rate.

Joint accounts also affect how the money is treated if you pass away. In most states, the money in a joint account goes directly to the surviving owner (your grandchild) and does not go through your will or estate. This can be helpful, but it also means the money bypasses any other plans you had for your assets.

What you need to bring to the bank

Bring your government-issued photo ID (driver's license or passport) and your Social Security number. You will also need your grandchild's Social Security number. If you do not have it, you can request it from the Social Security Administration or ask the parents for it.

Some banks ask for proof of your relationship to your grandchild. A birth certificate, custody papers, or a letter from the parents stating that you are the grandparent may be enough. Call your bank before you go in and ask what they need—different banks have different policies, and some do not require proof at all.

If your grandchild is under 18 and the bank requires them to be present, bring them with you. If the bank allows you to open a custodial account without them, you can do it on your own. Ask when you call.

How the account affects financial aid and taxes

Money in a custodial account counts as your grandchild's asset when they fill out the Free Application for Federal Student Aid (FAFSA) for college. This can reduce the amount of need-based financial aid they receive. The impact is usually larger than if the money were in your name, because the formula assumes students should contribute more of their own assets toward college costs than parents should.

If you are saving for college, talk to a tax professional or financial advisor about whether a custodial account makes sense for your situation. In some cases, keeping the money in your own name and gifting it later may result in more financial aid, though it also means the money is not legally your grandchild's.

For taxes, custodial accounts file on your grandchild's tax return, not yours. If the account earns less than the standard deduction for that year (around $1,300 for 2024, though this changes annually), no tax return is needed at all. Your bank will send a 1099 form if earnings exceed that threshold.

If your grandchild is 18 or older

Once your grandchild turns 18, they can open their own savings account without you. You do not need to be involved unless they ask you to be. However, you can still help them open an account by going to the bank together, explaining how savings accounts work, or helping them choose a bank.

If you want to give them money after they turn 18, you can deposit it into their account directly, or they can open a joint account with you if they want your help managing it. There are no legal restrictions on how much you can give them, though there are federal gift tax rules if you give more than a certain amount in a single year (currently $18,000 per person, though this changes). For most grandparents, this is not a concern, but a tax professional can advise you if you are planning large gifts.

Frequently Asked Questions

Do I need the parents' permission to open a custodial account for my grandchild?

No, you do not need permission. A custodial account is a legal arrangement between you and the bank. However, it is a good idea to tell the parents what you are doing, especially if they are the ones providing the grandchild's Social Security number. Some parents may have concerns about who controls the money, so a conversation ahead of time can prevent misunderstandings.

What happens to the money if I pass away before my grandchild turns 18?

The money stays in the custodial account and belongs to your grandchild. The bank will need a new custodian to manage it until your grandchild reaches adulthood. You can name a successor custodian when you open the account, or the parents can petition the court to appoint one. If you do not name a successor, the court will decide who manages the account.

Can I take money out of a custodial account if my grandchild needs it for something other than their own benefit?

No. The money in a custodial account must be used for your grandchild's benefit—things like education, medical care, or living expenses. You cannot withdraw it for your own use or for someone else's use. If you do, you may face legal consequences and tax penalties.

Will opening a savings account for my grandchild hurt their credit?

No. A savings account does not appear on a credit report and does not affect credit score. Credit reports track borrowing and repayment, not savings. Your grandchild will not have a credit history until they borrow money (through a loan or credit card) and make payments on it.

Can I open a custodial account at any bank?

Most banks and credit unions offer custodial accounts, but not all. Call ahead or check the bank's website to confirm they offer UTMA or UGMA accounts. Online banks sometimes have different rules than traditional banks, so ask about their specific requirements for opening an account with a minor.