What You Need to Open an Account

You can open a savings account for your grandchild at most banks and credit unions, but the account structure depends on the child's age and whether you want to manage it yourself or give them access later. If your grandchild is under 18, you'll open a custodial account (also called a minor account or UGMA/UTMA account) in your name as the custodian, with the child listed as the beneficiary. The bank holds the money in trust until they reach the age of majority — usually 18 or 21, depending on your state and the account type.

To open the account, bring a government-issued ID, your Social Security number, and your grandchild's Social Security number or tax ID. Some banks also ask for proof of address (a utility bill or lease). If your grandchild doesn't have a Social Security number yet, you can request one from the Social Security Administration before opening the account, or some banks will let you open the account and add the number later. You'll need to decide which bank or credit union to use — this might be where you already bank, or you might choose based on interest rates, fees, or whether they offer accounts specifically designed for children.

Key Takeaways

  • A custodial account lets you open a savings account for your grandchild and manage it until they turn 18 or 21, depending on your state and account type.
  • You will need your ID, Social Security number, and your grandchild's Social Security number or tax ID to open the account.
  • The money in the account belongs to your grandchild legally, even though you control it as custodian, and this affects taxes and financial aid later.
  • Most banks charge little or no monthly fee for children's savings accounts, but interest rates vary widely — compare rates before choosing a bank.
  • When your grandchild reaches the age of majority, the account transfers to them automatically, and you lose control of the money.

Custodial Accounts vs. Accounts in Your Name Only

A custodial account is the standard way to save for a minor. The money is legally your grandchild's property, but you have the right to manage it and decide how it's spent until they come of age. This matters for taxes: the first portion of earnings (usually around $1,300 per year, though this changes annually) is tax-free, and earnings above that are taxed at your grandchild's rate, which is typically lower than yours. If you instead open an account in your own name and intend it as a gift, the money is legally yours, and all interest is taxed at your rate — this is simpler but less tax-efficient.

The custodial route also matters if you're concerned about financial aid later. Money in a custodial account counts as the student's asset when they apply for college financial aid, which can reduce aid may be able to access more than money in a parent's account would. If your grandchild's parents are the ones paying for college, this may not matter much. But if you're the primary saver and your grandchild may need aid, talk to the parents about whether a custodial account makes sense for your situation.

One more difference: when your grandchild turns 18 or 21 (depending on state and account type), a custodial account transfers to them automatically, and you lose all control. If you open an account in your name only, you keep control forever — but you also keep the tax burden, and the money won't be protected if you face creditors or a lawsuit.

Types of Custodial Accounts and State Rules

The two main types of custodial accounts are UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). UTMA is newer and available in all 50 states; UGMA is older and not available in South Carolina. For a savings account, the difference is small — both let you deposit money and manage it until your grandchild comes of age. UTMA allows you to transfer a broader range of assets (real estate, for example), but for a simple savings account, either works.

The age at which your grandchild takes control varies by state. In most states, it's 18 for UGMA and 21 for UTMA, but some states let you choose, and a few have different rules. When you open the account, the bank will tell you the age of majority for your state and account type. This is important to know upfront — if you want the money to stay in the account longer, UTMA with a 21 cutoff might suit you better than UGMA with an 18 cutoff.

Where to Open the Account and What to Compare

You can open a custodial savings account at any bank or credit union that offers them — most do. Start by checking whether you already bank somewhere; many people find it convenient to open a child's account at the same institution. If you're shopping around, compare three things: interest rate (how much the account earns), monthly fees (many children's accounts charge nothing, but some charge $5 to $10), and minimum balance requirements (some accounts require you to keep a certain amount on deposit).

Online banks often offer higher interest rates than brick-and-mortar banks, though the difference changes with market conditions. A savings account earning 4% to 5% annually will grow noticeably faster than one earning 0.01%, especially over years. However, online banks may not offer debit cards or in-person service, which some families prefer. Credit unions sometimes offer competitive rates and lower fees, especially if you're a member. Spend 15 minutes comparing rates on a site like Bankrate or NerdWallet, then call or visit the bank's website to confirm the rate and ask about any promotions for new accounts.

The Account Setup Process

Once you've chosen a bank, you can open the account online, by phone, or in person. Online is usually fastest — you'll fill out a form with your information and your grandchild's, upload a photo of your ID, and fund the account by transferring money from your existing bank account. The whole process takes 10 to 20 minutes, and the account is usually active within one to three business days.

If you open in person, bring your ID, your Social Security number, and your grandchild's Social Security number. The bank will ask you to sign paperwork naming yourself as custodian and your grandchild as the beneficiary. You'll also decide on an initial deposit — this can be as small as $1 or $25, depending on the bank. Some banks offer a small bonus (like $25 to $100) if you set up automatic deposits, so ask about that when you open the account.

After the account is open, you'll receive a debit card or checkbook in your name (as custodian), or sometimes in your grandchild's name with your name as custodian. You can deposit money by transferring it from your bank account, making deposits at an ATM or branch, or setting up automatic transfers from your paycheck or another account. Many grandparents set up a small automatic deposit each month — $25 or $50 — to build the habit of saving.

Tax Reporting and What Happens at Age of Majority

Each year, the bank will send you a 1099-INT form (or 1099-OID) showing the interest earned in the account. You'll report this on your grandchild's tax return, not yours. The first portion of earnings is usually tax-free (the "standard deduction" for unearned income), and anything above that is taxed at your grandchild's rate. If your grandchild has no other income, they likely owe no tax. If they do have income, the tax is usually minimal because their rate is lower than yours. Keep the 1099 forms in your records.

When your grandchild reaches the age of majority (18 or 21, depending on your state and account type), the account automatically transfers to them. You will no longer have access to it, and they can withdraw the money or manage it as they wish. Some grandparents talk to their grandchild before this happens — explaining what the account is for, how much is in it, and encouraging them to keep it invested rather than spend it all at once. But legally, once they reach majority, it's their money to do with as they please.

What to Do If Your Grandchild Already Has a Social Security Number Issue

If your grandchild doesn't have a Social Security number yet, you have two options. You can request one from the Social Security Administration before opening the account — this takes about two weeks by mail or a few days if you apply in person at a local office. Alternatively, some banks will let you open the account with a temporary tax ID or even without a number initially, then add the Social Security number once you receive it. Call the bank ahead of time to ask whether they allow this; it varies by institution.

If your grandchild was born outside the United States and doesn't have a Social Security number, they may have an Individual Taxpayer Identification Number (ITIN) instead. Most banks accept an ITIN in place of a Social Security number for opening a custodial account. Bring the ITIN documentation with you when you open the account.

Frequently Asked Questions

Can I add money to the account whenever I want?

Yes. There's no limit on how much you can deposit into a custodial savings account or how often you can add money. You can make one large deposit, set up automatic monthly transfers, or add money whenever you have extra cash. The account is yours to manage until your grandchild reaches the age of majority.

What happens if I need to withdraw money from the account?

You can withdraw money as the custodian, but it must be for the benefit of your grandchild — for their education, medical care, living expenses, or other needs. You cannot withdraw money for your own use; that would be a misuse of the custodial account. If you need access to money for yourself, open a separate account in your own name instead.

Can my grandchild's parents add money to the account too?

Yes. The parents can deposit money into the account you opened, and you'll remain the custodian. There's no rule against multiple people contributing. However, only one person can be the custodian — the person who has legal control. If you want the parents to have equal control, you'd need to open a separate account with one of them as custodian, or discuss changing the custodian arrangement with the bank.

Does the money in a custodial account count against me for my own benefits?

No. The money in a custodial account is your grandchild's asset, not yours, so it doesn't count toward your income or assets for purposes of Social Security, Medicare, Medicaid, or other benefits you may receive. This is one advantage of a custodial account over keeping the money in your own name.

What if I want to change banks after opening the account?

You can transfer the money to a different bank by opening a new custodial account and moving the funds over. Contact the new bank about their transfer process — many can initiate an electronic transfer from the old account. You'll need to close the old account once the transfer is complete. The process usually takes one to two weeks.