Yes, grandparents can open savings accounts for grandchildren, but the account structure depends on the child's age and your role

Grandparents can set up savings accounts for grandchildren in three main ways: as a custodian under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), as a joint account holder, or by opening an account in the child's name alone and managing it as a trusted adult. The method you choose affects who owns the money, what happens to it when the child turns 18 or 21, and how the account is taxed.

The most common route is a custodial account, where you hold the account legally on behalf of the child until they reach the age of majority (18 or 21, depending on your state and which law applies). The money belongs to the child from day one, but you control it until that age. This is different from a joint account, where you both own the money and both can withdraw it at any time.

Before you open anything, you will need the child's Social Security number. If the child does not have one yet, you can request one from the Social Security Administration or apply at the same time you open the account — most banks can help with this.

Key Takeaways

  • Custodial accounts under UTMA or UGMA are the most common choice because the money legally belongs to the child but you control it until age 18 or 21.
  • You will need the child's Social Security number to open any account, and you can request one from Social Security if the child does not have it yet.
  • Custodial accounts have tax advantages for smaller balances, but earnings above a certain threshold are taxed at the child's rate rather than yours.
  • When the child reaches the age of majority, the account automatically transfers to their control — you cannot keep the money or redirect it.
  • Joint accounts give you both access to the money immediately, but they may complicate the child's financial aid or create issues if you face creditors.

Custodial accounts: the standard choice for grandparent savings

A custodial account is set up under your state's UTMA or UGMA law. You are the custodian, the child is the beneficiary, and the money belongs to the child but you manage it. When you deposit money, you are making a legal gift to the child — it is not a loan, and you cannot take it back or use it for yourself.

The account is opened in the child's name with your Social Security number listed as the custodian. The bank will ask for proof of your identity and relationship to the child. Some banks require a birth certificate or custody documents; others do not. Call ahead to ask what the bank needs before you visit.

When the child reaches the age of majority — 18 in most states, 21 in a few — the account automatically transfers to their full control. You have no say in what they do with it after that point. This is a legal requirement, not a bank policy, so you cannot negotiate around it or set conditions.

Tax treatment of custodial account earnings

Money you deposit into a custodial account is not taxed — it is a gift. But any interest or investment earnings the account generates may be taxed. The tax rules depend on how much the child earned and how old they are.

For 2024, the first $1,450 of a child's unearned income (interest, dividends, investment gains) is tax-free. The next $1,450 is taxed at the child's rate, which is usually lower than yours. Anything above $2,900 is taxed at your rate (the parent's or guardian's rate, not the custodian's). These thresholds change each year, so check the IRS website or ask your bank or tax preparer for the current year's limits.

This means a custodial account with a modest balance earning a small amount of interest will likely owe no tax at all. A larger balance or one invested in stocks or mutual funds may generate tax liability. You will need to file a tax return for the child if their earnings exceed the threshold, even if no tax is owed.

Joint accounts: faster access, but with trade-offs

A joint account is simpler to set up. You and the child are both owners, both can withdraw money, and both names appear on the account. No special legal structure is needed — most banks offer joint savings accounts as a standard product.

The downside is that the money is legally yours and the child's equally. If you face a lawsuit, creditor claim, or bankruptcy, the account could be at risk. If the child later needs to show their assets for financial aid or a loan, the full balance counts as theirs. And if you die, the account does not automatically go to the child the way a custodial account does — it becomes part of your estate.

Joint accounts work best for smaller amounts or short-term savings — money you plan to use together or that the child will access while still young. For long-term wealth building, a custodial account is usually the better choice.

Opening the account: what you need and where to go

You can open a custodial account at most banks, credit unions, and investment firms. Online banks often have lower minimum balances and higher interest rates than brick-and-mortar banks, but you cannot walk in and speak to someone in person. Traditional banks let you sit down with someone who can answer questions on the spot.

Bring the child's Social Security number (or apply for one at the same time), your ID, and proof of your relationship to the child — usually a birth certificate or custody order. Some banks ask for the child's birth certificate as well. Call the bank's customer service line before you visit or apply online to confirm what they need.

If you are opening a custodial account, the bank will ask which law applies — UTMA or UGMA. Most states use UTMA (Uniform Transfers to Minors Act), which is newer and more flexible. The difference rarely matters for a simple savings account, so ask the bank which one they recommend for your state.

What happens when the child turns 18 or 21

When the child reaches the age of majority, the custodial account automatically converts to an account in their name alone. You lose all legal authority over it. The bank will contact the child (now an adult) to confirm their information and may ask them to sign new paperwork, but you will not be involved.

This is a hard deadline. You cannot extend your control, set conditions on how they use the money, or keep the account open under your name. If you want to continue helping them save after they turn 18, you would need to open a new account with their consent and involvement.

Some grandparents use this as a teaching moment — they discuss with the child (before the transfer happens) what the money is for and why they saved it. Others simply let the child make their own decisions. Either way, the legal transfer is automatic and non-negotiable.

Special situations: accounts for very young children or without a Social Security number

If the child does not have a Social Security number yet, you can request one from the Social Security Administration before opening the account, or you can ask the bank if they can help you apply at the same time you open the account. The process takes a few weeks, so plan ahead if you want the account open by a specific date.

If the child is a newborn or very young, you can still open a custodial account immediately. The account will sit in their name with your custodian authority, and you can deposit money whenever you want. There is no minimum age to open an account or receive gifts.

If you are not the parent or legal guardian and the child's parents object to the account, the parents can challenge it or ask the bank to close it. To avoid conflict, talk to the parents first and make sure they understand what you are doing and why.

Frequently Asked Questions

Can I take money out of a custodial account for my own use?

No. The money belongs to the child, and you are legally required to use it only for their benefit — education, medical care, living expenses, and similar costs. Taking money for yourself is a violation of your custodial duty and can have legal consequences. If you need to use some of the money for the child's expenses, keep receipts to document that it was spent on them.

What if the child's parents want to close the account or take control of it?

The parents cannot take control of a custodial account you opened, but they can ask the bank to close it and transfer the money to a new account they control. You have no legal right to stop them. If you want to protect the account, talk to the parents before you open it and explain why you are saving the money.

Do I have to report the account to the IRS or file taxes for the child?

You do not have to report the account itself, but if the child's earnings (interest, dividends, or investment gains) exceed the annual threshold, you or the child's parents will need to file a tax return for the child. The bank will send a 1099 form if earnings are high enough. Ask your tax preparer or the IRS website for the current year's threshold.

Can I name the custodial account in my will so it goes to the child when I die?

The custodial account already belongs to the child, so it does not pass through your will. When you die, the account simply continues in the child's name with no custodian. If the child is still a minor, the parents or a court-appointed guardian will take over management. You do not need to do anything special in your will regarding a custodial account.

Is a custodial account the same as a 529 college savings plan?

No. A custodial account is a general savings account that can be used for any purpose. A 529 plan is a tax-advantaged account specifically for education expenses. You can have both — a custodial account for general savings and a 529 for college. The tax rules and withdrawal restrictions are different for each.