What You Need to Open an Account

You can open a savings account for a grandchild in one of two ways: as a custodian on a custodial account, or as a joint owner on a regular account. The documents and steps differ between them, and which one you choose affects taxes, control, and what happens to the money later.

For a custodial account, you will need the grandchild's Social Security number, a government-issued ID (yours), proof of address (a recent utility bill or bank statement), and the grandchild's birth certificate. The bank will ask for the grandchild's full legal name and date of birth. You do not need the grandchild present, and you do not need permission from the parents—though telling them is practical.

For a joint account, the requirements are similar, but some banks require the grandchild to be present in person or to sign documents. Call the bank first to ask whether a minor can be a joint owner and what their age minimum is—it varies from bank to bank.

Key Takeaways

  • A custodial account puts you in control until the grandchild reaches the age of majority (18 or 21, depending on your state), at which point the money becomes theirs automatically.
  • A joint account gives you both access to the money now, but the grandchild can withdraw funds without your permission once they have the debit card or online access.
  • Custodial accounts have tax advantages for small balances—the first $1,250 of earnings in 2024 is tax-free to the grandchild—but you will need to file a tax return if earnings exceed that.
  • Most banks let you open a custodial account online or by phone without the grandchild present, but joint accounts often require an in-person visit.
  • The money in a custodial account counts as the grandchild's asset for financial aid purposes, which can reduce aid may be able to access more than if the money were in your name.

Custodial Accounts: Control Until They Come of Age

A custodial account is opened under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA)—the rules vary slightly by state, but the idea is the same. You are the custodian, meaning you manage the account and make decisions about the money. The grandchild is the beneficiary, and the account legally belongs to them.

You keep control until the grandchild reaches the age of majority. In most states that is 18; in a few it is 21. At that point, the account is theirs, and you have no say in what they do with it. You cannot take the money back, and you cannot tell them how to spend it. This is a permanent transfer—it is not a loan or a temporary arrangement.

To open one, contact a bank, credit union, or brokerage and ask for a custodial account application. You will fill out the form with your information and the grandchild's information. Some banks let you do this entirely online; others require a phone call or a visit. The bank will verify your identity and the grandchild's Social Security number. The account is usually open within a few business days.

Joint Accounts: Shared Access, Shared Risk

A joint account has both your name and the grandchild's name on it. You both have equal legal rights to the money—either of you can deposit, withdraw, or close the account. This makes it simpler to manage day-to-day, but it also means the grandchild can take money out without asking you.

Joint accounts do not automatically transfer to the grandchild at a certain age. The account stays joint unless you close it or remove their name. If you die, the money passes to the grandchild by right of survivorship—it does not go through your will or your estate.

The tax treatment is also different. Money in a joint account is considered yours for tax purposes unless you can prove the grandchild contributed to it. This means you pay taxes on any interest or earnings, not the grandchild. For large balances or high-interest accounts, this can be a disadvantage compared to a custodial account.

Tax Considerations and Reporting

Custodial accounts have a tax advantage for small balances. In 2024, the first $1,250 of earnings in a custodial account is tax-free. The next $1,250 is taxed at the grandchild's rate (usually 0% if they have no other income). Earnings above $2,500 are taxed at your rate. This means a custodial account with a small balance—say, $5,000—will generate very little tax liability.

If the account earns more than $1,250 in a year, you will need to file a tax return for the grandchild. You can file using Form 1040 or Form 1040-SR. The grandchild does not need to file if their income is below the threshold, but you may choose to file anyway to get a refund of taxes withheld.

Joint accounts are taxed differently. The interest and earnings belong to you for tax purposes, so you report them on your own return. This is simpler in terms of paperwork, but it means you pay tax at your rate, not the grandchild's lower rate.

How Custodial Accounts Affect Financial Aid

If the grandchild plans to go to college, the type of account matters. Money in a custodial account is counted as the grandchild's asset when they fill out the Free Application for Federal Student Aid (FAFSA). Assets in the student's name reduce aid by up to 20% of the asset value each year.

Money in your name—whether in a joint account or in your own savings account—is not counted on the FAFSA at all. This means a custodial account can reduce financial aid may be able to access more than keeping the money in your own account. If you are saving specifically for college and want to preserve aid may be able to access, a joint account or your own account may be better.

This is a long-term consideration. If the grandchild is young and college is years away, the impact may be small. If college is coming up in the next few years, it is worth thinking about before you open the account.

Where to Open the Account

Most banks, credit unions, and online banks offer custodial savings accounts. The process is similar across institutions: you provide identification, the grandchild's Social Security number, and proof of address. Some banks have a minimum deposit; others do not. Interest rates vary widely, so it is worth comparing a few options.

Online banks often have higher interest rates than brick-and-mortar banks, but they do not have branches. If you want to deposit cash or talk to someone in person, a local bank or credit union may be more convenient. If you are comfortable with online banking, an online bank can offer better returns on the money.

Some investment brokerages also offer custodial accounts, which can hold stocks, bonds, or mutual funds instead of just cash. These are more complex and usually make sense only if you plan to invest the money rather than just save it.

Telling the Parents and Setting Expectations

There is no legal requirement to tell the parents that you are opening an account for the grandchild, but it is a good idea. Parents may have their own savings plans or financial goals for the child, and knowing about your account helps them coordinate. It also prevents confusion or conflict later.

Be clear about what the money is for and what will happen to it. Is it for college? For a car? For a general safety net? Will you add to it regularly, or is this a one-time gift? Will the grandchild know about it, or is it a surprise? These conversations prevent misunderstandings and help everyone plan.

If you choose a custodial account, explain that the money becomes the grandchild's at 18 or 21, depending on your state. They will have full control and can spend it however they want. If that concerns you, a joint account or a trust might be better options, though those have their own trade-offs.

Frequently Asked Questions

Can I open a custodial account without the parents' permission?

Yes. A custodial account is a legal gift from you to the grandchild, and you do not need parental consent to make a gift. However, telling the parents is practical and prevents surprises later. Some parents may have concerns about the account, and a conversation can address them.

What happens to the money if I die before the grandchild turns 18?

The money stays in the custodial account and is managed by a successor custodian you name when you open the account. You can name a parent, another grandparent, or a trusted adult. If you do not name a successor, the court will appoint one. The money still becomes the grandchild's at the age of majority.

Can I take money out of a custodial account if I need it?

No. A custodial account is a legal gift, and the money belongs to the grandchild. You can use the money only for the grandchild's benefit—education, medical care, living expenses. Using it for your own needs is a violation of your duty as custodian and can have legal consequences.

Is there a limit to how much I can put in a custodial account?

There is no limit on how much you can deposit into a custodial account itself. However, there are gift tax limits if you are giving large sums. In 2024, you can give up to $18,000 per person per year without filing a gift tax return. Amounts above that require a return, though you may not owe tax. Consult a tax professional if you are planning a large gift.

Can I change my mind and close a custodial account?

You can close the account, but the money still belongs to the grandchild. You cannot take it back or use it for yourself. Closing the account just means the grandchild receives the balance, usually as a check or transfer to another account. Once the account is closed, you no longer have control.