Yes, grandparents can open a savings account for a grandchild, but the account structure depends on the child's age

A grandparent can open a savings account in a grandchild's name at most banks and credit unions. The exact process and account type depend on whether the child is a minor or an adult. For children under 18, you will open a custodial account (also called a minor account or UTMA/UGMA account, depending on your state). For grandchildren 18 or older, they can open their own account, though you can fund it and help manage it if they give you permission.

The bank or credit union you choose will have specific rules about who can open the account and what documents you need. Some institutions require the grandparent and grandchild to visit together; others allow the grandparent to open it alone if the child is very young. You will need the grandchild's Social Security number either way.

Key Takeaways

  • For grandchildren under 18, you open a custodial account where you act as the account custodian until they reach the age of majority (usually 18 or 21, depending on your state).
  • You will need the grandchild's Social Security number, a form of ID for yourself, and proof of address to open the account at most banks or credit unions.
  • Custodial accounts belong to the grandchild, not to you—the money cannot be taken back or used for your own expenses once deposited.
  • The grandchild gains full control of the account when they reach the age of majority in your state, which is typically 18 or 21.
  • Some grandparents use 529 college savings plans or Coverdell accounts instead of regular savings accounts if the goal is education funding.

What you need to open a custodial account for a minor grandchild

Bring the grandchild's Social Security number, your government-issued ID (driver's license or passport), and proof of your current address (a recent utility bill or bank statement). Some banks also ask for the grandchild's birth certificate, though this is not always required. Call the bank or credit union ahead of time to confirm what they need—requirements vary by institution.

Many banks allow you to open a custodial account without the grandchild present, especially if the child is very young. Others require both the custodian and the minor to visit in person. A few banks and credit unions let you open the account online if you have a camera or scanner to upload documents. Ask whether the bank offers online account opening for minors before you visit.

How custodial accounts work and when control transfers

In a custodial account, you are the custodian—you manage the money and make deposits and withdrawals on behalf of the grandchild. The account is registered in the grandchild's name, and the money belongs to them legally, even though you control it while they are a minor. You cannot withdraw the money for your own use or take it back; it must be used for the grandchild's benefit or transferred to them when they reach adulthood.

When the grandchild reaches the age of majority in your state—usually 18, but sometimes 21—they automatically gain full control of the account. You no longer have authority to make withdrawals or decisions about the money. This transfer happens whether or not you have discussed it with them. If you want to keep managing the account after they turn 18, they must give you written permission, and the account structure may need to change.

The difference between custodial savings accounts and other account types

A regular custodial savings account at a bank or credit union is the simplest option. Money sits in the account and earns a small amount of interest. You can deposit and withdraw as needed. This works well if you want to save money for general purposes—a car, college, or a future emergency.

A 529 college savings plan is a different structure designed specifically for education costs. It offers tax advantages if the money is used for tuition, room and board, or other may have access to education expenses. If you withdraw the money for non-education purposes, you pay taxes and a penalty on the earnings (though not on the money you deposited). A 529 is worth considering if education funding is your main goal.

A Coverdell Education Savings Account is another education-focused option with tax benefits, though it has lower contribution limits than a 529. A regular custodial savings account has no contribution limits and no restrictions on how the money is used, so it is more flexible if you are not certain what the money will be needed for.

What happens to the account when the grandchild turns 18

The grandchild gains legal ownership and control of the account automatically. You will no longer be able to make withdrawals or deposits without their permission. Some banks send a notice to both you and the grandchild when the account holder reaches the age of majority, but not all do. It is a good idea to contact the bank yourself a few months before the grandchild's 18th birthday to understand what will happen and what paperwork, if any, needs to be signed.

If the grandchild is still in school or not ready to manage the account independently, you can discuss a plan with them. They may agree to let you continue managing it, or you can help them learn to manage it themselves. Some grandchildren choose to keep the account at the same bank; others move the money or close it. The choice is entirely theirs once they reach adulthood.

Tax considerations for custodial accounts

Money you deposit into a custodial account is not a taxable gift to the grandchild for federal tax purposes, as long as you stay within the annual gift tax exclusion limit. For 2024, you can give up to $18,000 per person per year without filing a gift tax return. If you give more than that in a single year, you must file a form, though you likely will not owe tax. The rules are complex, so if you plan to deposit large amounts, consider talking to a tax professional.

Interest earned in the account is taxable income to the grandchild. The bank will send a 1099-INT form if interest exceeds $10 in a year. The grandchild (or their parent, if they are a dependent) may need to report this on a tax return. The tax burden is usually small because savings account interest rates are low, but it is worth knowing about.

Frequently Asked Questions

Can I take money out of the account if I need it?

No. Once you deposit money into a custodial account, it belongs to the grandchild legally. You can only withdraw it for the grandchild's benefit—education, medical care, living expenses, and similar needs. Taking money out for your own use is a violation of your duty as custodian and could have legal consequences. If you want to keep money available for yourself, do not put it in a custodial account.

What if the grandchild dies before reaching adulthood?

The money in the account becomes part of the grandchild's estate and is distributed according to their will or, if there is no will, according to your state's inheritance laws. This is one reason some grandparents name a beneficiary on the account—if the account allows it, you can specify who receives the money if the grandchild dies. Ask the bank whether this option is available.

Can I open a custodial account if I do not have custody of the grandchild?

Yes. You do not need to be the legal guardian or custodian to open a savings account in the grandchild's name. You only need their Social Security number and your own ID. However, some banks may ask questions about your relationship to the child or may require the parent's permission. Call ahead to ask about the bank's policy.

What is the difference between a custodial account and a trust?

A custodial account is simpler and cheaper to set up—you just visit a bank. A trust is a legal document that gives you more control over how and when the grandchild receives the money, and it can name a backup person to manage the money if you die. Trusts cost more to create and require a lawyer. For most grandparents saving modest amounts, a custodial account is sufficient.

Can I name someone else as custodian if something happens to me?

Not automatically. When you open a custodial account, you are the custodian. If you die, the account does not automatically pass to another custodian—it becomes part of your estate. Some banks allow you to name a successor custodian when you open the account, but not all. Ask about this option when you visit the bank, and if it is available, use it. If it is not, you may want to consider a trust instead.