Yes, you can open a savings account for your grandchild, but the rules depend on their age and your relationship to them
You can open a savings account in your grandchild's name at most banks and credit unions, but the account structure changes based on whether they are a minor or an adult. If your grandchild is under 18, you will open a custodial account (also called a minor account or UTMA/UGMA account depending on your state). You act as the custodian, meaning you manage the money until they reach the age of majority—usually 18 or 21, depending on your state and the account type. If your grandchild is 18 or older, they can open their own account and you do not need to be involved, though you can still gift money into it.
The account belongs to your grandchild from day one, even though you control it while they are a minor. This is different from opening an account in your own name and putting money aside for them. That distinction matters for taxes, for what happens if you die, and for what your grandchild can do with the money once they turn 18.
Key Takeaways
- Custodial accounts for minors require you to provide your grandchild's Social Security number, birth date, and address, plus your own identification and Social Security number.
- The money in the account belongs to your grandchild, not to you, so it cannot be seized by your creditors or included in your estate if you die.
- Earnings on the account (interest or investment gains) may be taxable to your grandchild, and the tax treatment depends on their age and the account balance.
- When your grandchild reaches the age of majority (usually 18 or 21), they gain full control of the account and you no longer have authority over it.
- Some states offer 529 education savings plans as an alternative if your goal is to save for college, with different tax benefits and control rules.
What you need to open a custodial account
To open a custodial savings account for a minor grandchild, bring your grandchild's Social Security number, date of birth, and current address. You will also need to provide your own government-issued ID (driver's license or passport), your Social Security number, and your address. Some banks ask for a phone number and email address for both of you as well.
If you do not have your grandchild's Social Security number, you can request one from the Social Security Administration using Form SS-5, which takes about two weeks. Some banks will let you open the account and add the number later, but most require it upfront. Call the bank or credit union before you visit to confirm what documents they need—requirements vary by institution.
You do not need your grandchild to be present to open the account. Many banks let you open a custodial account online or by mail, though some still require an in-person visit. If you open it online, you may be able to fund it immediately with a transfer from your own account.
How custodial accounts work once they are open
Once the account is open, you can deposit money, withdraw money, and manage the account as you see fit. Your grandchild cannot access the account or make withdrawals while they are a minor—only you can. The bank or credit union treats you as the account owner for day-to-day purposes, but the legal ownership belongs to your grandchild.
You can add money to the account as often as you want, and there is no limit on how much you can deposit over time. However, federal gift tax rules allow you to give up to a certain amount per year per person without filing a gift tax return. For 2024, that amount is $18,000 per grandchild per year if you are married and file jointly, or $9,000 if you file alone. These limits reset each January. Giving more than the limit does not mean you owe tax—it means you must file a form to report it—but staying under the limit keeps things simple.
You should not use the money in the account for your own expenses. The account is your grandchild's property, and using it to pay your bills or debts is legally considered misuse of the funds. If you die before your grandchild reaches the age of majority, the account does not go through your estate—it passes directly to your grandchild or to a successor custodian you named.
Tax treatment of interest and earnings
Interest or investment gains earned in a custodial account are taxable to your grandchild, not to you. This is actually one reason custodial accounts can be useful: if your grandchild has little or no other income, the first portion of the earnings may not be taxed at all, or may be taxed at their lower rate rather than yours.
For 2024, the first $1,450 of unearned income (interest, dividends, capital gains) is not taxed for a dependent child. The next $1,450 is taxed at the child's rate. Anything above $2,900 is taxed at the parent's rate (or in this case, the custodian's rate). These thresholds change each year. If your grandchild has no other income and the account earns less than $1,450 in a year, there is no tax on those earnings.
The bank or credit union will send you a 1099-INT or 1099-DIV form at the end of the year showing the earnings. You will report this on your grandchild's tax return (or your return if they are claimed as a dependent and the amount is small enough). If you are unsure whether you need to file a return for your grandchild, ask a tax professional or check the IRS website for the current filing thresholds.
What happens when your grandchild turns 18 or 21
When your grandchild reaches the age of majority—18 in most states, 21 in a few—they gain full control of the account. You no longer have authority to make withdrawals or decisions about the money. The account is theirs to use as they wish, whether that is paying for college, buying a car, or spending it on something else entirely.
This is an important point to understand before you open the account. If you are saving money with the expectation that your grandchild will use it for college or a specific purpose, a custodial account does not may provide that. Once they reach the age of majority, they can withdraw all the money and spend it however they choose. If you want more control over how the money is used, a 529 education savings plan or a trust might be better options, though those have their own rules and costs.
Some grandparents discuss their intentions with their grandchild before opening the account, or wait until the grandchild is old enough to understand the purpose. Others open the account and have a conversation about it as the grandchild gets older. There is no legal requirement to tell your grandchild about the account, but doing so can prevent misunderstandings later.
Custodial accounts versus other savings options
A regular custodial savings account is the simplest option, but it is not the only way to save for a grandchild. A 529 plan is a state-sponsored education savings account that offers tax benefits if the money is used for college, graduate school, or certain K-12 expenses. Contributions grow tax-free, and withdrawals for education are not taxed. If the money is not used for education, you pay taxes on the earnings plus a 10% penalty, though some exceptions exist. You keep more control over a 529 than over a custodial account—the money does not automatically pass to your grandchild at 18.
A trust is another option if you want to set conditions on how the money is used or when your grandchild can access it. You can create a trust that holds money for your grandchild and specifies that it can only be used for education, or that it cannot be touched until they turn 25. Trusts cost more to set up (usually $500 to $2,000 with a lawyer) and are more complex to manage, but they give you the most control.
For most grandparents who simply want to save money and give it to their grandchild when they grow up, a custodial account is the most straightforward choice. It is free or low-cost to open, requires no legal paperwork, and the money is genuinely the grandchild's from the start.
If your grandchild is already 18 or older
If your grandchild is an adult, they can open their own savings account at any bank or credit union. You do not need to be involved in the process. However, you can still gift money to them—there is no limit on how much you can give, though amounts over the annual gift tax threshold require you to file a form with the IRS.
If you want to add your grandchild as a joint owner on an existing account of yours, most banks allow this. A joint account means you both can deposit and withdraw money. This can be useful if you want to give your grandchild access to funds while you are alive, but be aware that a joint account will pass to your grandchild outside of your will if you die—it does not go through your estate.
Some grandparents also name their adult grandchild as a beneficiary on a savings account, which means the money passes to them automatically if you die. This is different from a joint account: your grandchild cannot access the money while you are alive, but they do not have to go through probate to receive it after you die.
Frequently Asked Questions
Can I take money out of my grandchild's custodial account if I need it?
Legally, no. The money belongs to your grandchild, not to you. Taking money out for your own use is considered misuse of the funds and could have legal consequences. If you are in financial hardship, you should look for other sources of help rather than using your grandchild's account.
What happens to the custodial account if I die before my grandchild turns 18?
The account does not go through your estate. It passes directly to your grandchild or to a successor custodian you named when you opened the account. If you did not name a successor, the bank or court will appoint one. The money stays in the account until your grandchild reaches the age of majority.
Can I open a custodial account if I am not the parent?
Yes. Grandparents, aunts, uncles, and other relatives can all open custodial accounts for minors. You do not need permission from the parent, though it is usually a good idea to let them know. The account is still the child's property, and you are simply managing it on their behalf.
Will a custodial account affect my grandchild's financial aid for college?
Yes, it may. Money in a custodial account is counted as the student's asset when calculating financial aid, which can reduce the amount of aid they receive. A 529 plan has different treatment and may be more favorable for financial aid purposes. Talk to a financial aid advisor if this is a concern.
Can I change my mind and close the custodial account?
You can close the account, but the money still belongs to your grandchild. You cannot keep it for yourself. The funds must go to your grandchild or, if they are very young, be transferred to another account in their name or held in trust for them.