You can open a savings account for a grandchild in their name, but the account must be held in trust until they reach the age of majority—usually 18 or 21, depending on your state and the bank.
The most common method is a custodial account, where you act as the custodian and manage the money until your grandchild turns 18 or 21. You deposit funds, earn interest, and control withdrawals. The account belongs to your grandchild legally, but you handle it on their behalf. Banks and credit unions offer these accounts under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA)—both are state laws that set the rules for how long you can manage the money and what happens when your grandchild comes of age.
A second option is a 529 college savings plan, which is specifically designed for education costs. You open it in your grandchild's name, contribute money, and the funds grow tax-free if used for tuition, room and board, or other may have access to education expenses. This is not a general savings account—it has tax advantages but restrictions on how the money can be used.
A third option is a trust account set up through an attorney, which gives you more control over when and how your grandchild receives the money after they turn 18. This is more expensive and complex than a custodial account, but it is useful if you want the money to stay protected beyond age 18 or if you have specific wishes about how it should be used.
Key Takeaways
- A custodial account in your grandchild's name is the simplest way to save for them, and most banks and credit unions offer them with no minimum balance or special fees.
- You will need your grandchild's Social Security number, their birth certificate or state ID, and proof of your relationship to open the account.
- When your grandchild reaches the age of majority (18 or 21, depending on your state), the account transfers to them and you lose control of it.
- A 529 plan offers tax benefits for education savings but restricts how the money can be spent; a trust account costs more but lets you control the money longer.
- The money in a custodial account counts as your grandchild's asset for financial aid purposes, which can reduce their may be able to access for student loans or grants.
What you need to open a custodial account
Bring your grandchild's Social Security number and a copy of their birth certificate or state-issued ID. You will also need to show proof of your own identity—a driver's license or passport—and proof of your relationship to the child. Some banks accept a birth certificate showing you as the grandparent; others may ask for custody papers or a letter from the parent giving you permission to open the account.
Call ahead or visit the bank's website to confirm what documents they require. Requirements vary by institution. Some banks ask for a parent's signature on the account opening form, while others do not. If your grandchild's parents are not involved or you do not have contact with them, ask the bank whether you can open the account with just your ID and the child's birth certificate.
You do not need a large deposit to start. Most banks allow custodial accounts with no minimum opening balance, though some credit unions or online banks may require $25 to $100. Interest rates and fees vary widely, so compare a few institutions before you decide.
How a custodial account works once it is open
You deposit money into the account and it earns interest at whatever rate the bank offers. You can add money whenever you want—there is no annual limit on contributions to a custodial account, unlike 529 plans or retirement accounts. You control all withdrawals and decisions about the account until your grandchild reaches the age of majority.
The account is held in your grandchild's name, so the interest earned is taxed at their tax rate, not yours. This is usually a benefit because children typically have little or no income tax liability. However, the first $1,300 of unearned income (interest, dividends) is usually tax-free for a dependent child; income above that is taxed at the child's rate up to a certain threshold, after which it may be taxed at the parent's rate. The exact rules change yearly, so check the IRS website or ask a tax professional for the current year's limits.
When your grandchild turns 18 or 21 (depending on your state and the account type), the account automatically transfers to them. You no longer have legal control. They can withdraw the money for any reason—college, a car, travel, or anything else. If you want to prevent that, you need a trust account instead, which requires an attorney to set up.
The difference between UTMA and UGMA accounts
Both UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) are state laws that allow you to hold money in trust for a minor. UGMA is older and covers gifts of money and securities. UTMA is newer and covers a wider range of assets—real estate, artwork, patents, and other property. Most banks and brokerages now offer UTMA accounts because they are more flexible.
The age at which your grandchild takes control of the account varies by state and by account type. With UGMA, it is usually 18 or 21. With UTMA, your state law sets the age, which is often 21 but can be 18 or 25 depending on where you live. Check your state's laws or ask the bank which age applies to the account you are opening.
The practical difference for you is minimal—both work the same way while your grandchild is a minor. The main thing is to know when control transfers so you are not surprised when your grandchild turns 18 and can suddenly access the money.
529 college savings plans as an alternative
A 529 plan is a tax-advantaged savings account designed specifically for education costs. You open it in your grandchild's name, contribute money, and the earnings grow tax-free as long as the money is used for tuition, room and board, books, computers, or other may have access to education expenses at an accredited college, university, or vocational school.
The main advantage is the tax benefit: you pay no federal tax on the earnings, and most states offer a state income tax deduction for contributions. If you contribute $5,000 and it grows to $8,000, you owe no tax on that $3,000 gain when you withdraw it for education. With a regular custodial account, you would owe tax on the interest.
The main disadvantage is the restriction: if you withdraw money for anything other than education, you pay income tax on the earnings plus a 10 percent penalty. If your grandchild does not go to college, you can transfer the money to another family member's 529 plan, but you cannot simply withdraw it without consequences. Some states have recently loosened these rules to allow transfers to Roth IRAs, but the rules are new and vary by state.
A 529 plan also counts as a parental asset for financial aid purposes, which is better than a custodial account—it reduces your grandchild's aid may be able to access less. If you are the account owner (not the grandchild), it counts even less toward financial aid calculations.
Trust accounts for long-term control
If you want the money to remain protected after your grandchild turns 18, or if you want to set conditions on how they use it, you need a trust account set up by an attorney. This is more expensive—legal fees typically range from $500 to $2,000 depending on complexity—but it gives you control over when and how your grandchild receives the money.
For example, you could specify that the money be released at age 25 instead of 18, or that it be used only for education or a home purchase. You can also name a trustee to manage the money after you die, ensuring your grandchild's inheritance is handled according to your wishes.
A trust account is not necessary if you simply want to save money for your grandchild and let them have it at 18. A custodial account is simpler and free. But if you have concerns about your grandchild's maturity, or if you want the money to last longer, a trust is worth the cost.
How custodial accounts affect financial aid
Money in a custodial account counts as your grandchild's asset when they fill out the FAFSA (Free Application for Federal Student Aid). Assets owned by the student reduce their financial aid may be able to access more than assets owned by parents. The formula assumes that students should contribute about 20 percent of their assets toward education each year, while parents should contribute about 5 percent of theirs.
This means a $10,000 custodial account could reduce your grandchild's financial aid by $2,000 per year. If you are saving for college, a 529 plan is a better choice because it is treated more favorably in the aid calculation, especially if you are the account owner rather than your grandchild.
If you are saving for something other than college—a car, a house down payment, or general life expenses—a custodial account is fine. Just be aware that if your grandchild later applies for student loans or grants, the account will be counted against them.
What happens when your grandchild turns 18
On the date your grandchild reaches the age of majority (18 or 21, depending on your state and account type), the custodial account automatically converts to a regular account in their name. You no longer have legal authority to manage it or make withdrawals. The bank will notify you and your grandchild of the transfer.
Your grandchild can then withdraw the money for any reason. There is no way to prevent this with a custodial account—if you want to restrict access, you need a trust account. Some grandparents have conversations with their grandchildren before the transfer date, explaining what the money is for and asking them to use it wisely, but you have no legal recourse if they spend it differently.
If you want to continue managing the money after your grandchild turns 18, you must have a separate conversation with them about giving you power of attorney or keeping you as a co-signer. They are under no obligation to do so.
Frequently Asked Questions
Can I open a savings account for my grandchild without their parents' permission?
It depends on the bank. Some banks require a parent's signature on the account opening form; others do not. Call ahead and ask. If you have custody or guardianship, you can open the account on your own. If you do not, some banks will still allow it with just your ID and the child's birth certificate, but policies vary.
What is the difference between a 529 plan and a custodial account?
A 529 plan is for education only and offers tax benefits on earnings; money withdrawn for non-education costs is taxed and penalized. A custodial account is for any purpose, has no tax advantages on earnings, but gives your grandchild full access at age 18 or 21. Choose 529 if you are saving specifically for college; choose custodial if you are saving for general purposes.
Can I name someone else to manage the account if I die?
With a custodial account, no—the account transfers to your grandchild when they reach the age of majority, regardless of whether you are alive. If you want someone else to manage the money after you die, you need a trust account set up by an attorney. A trust lets you name a trustee to handle the money according to your instructions.
Does the money in a custodial account count as income for my grandchild?
No, the deposits do not count as income. But the interest earned does. Interest is reported on your grandchild's tax return as unearned income. The first $1,300 or so is usually tax-free (the amount changes yearly), and income above that is taxed at your grandchild's rate.
Can I withdraw money from the account if I need it?
Legally, no. The money belongs to your grandchild, not to you. Withdrawing it for your own use is considered a misuse of the custodial account and can have tax and legal consequences. If you need access to your own money, keep it in a separate account in your name.