Yes, minors can have high-yield savings accounts, but an adult must open and manage the account

A minor cannot open a high-yield savings account alone. Banks and online financial institutions require the account holder to be at least 18 years old to sign a contract. However, a parent or legal guardian can open a custodial high-yield savings account in the minor's name, with the adult as the custodian. The minor owns the money, but the adult controls the account until the minor reaches the age of majority—usually 18 or 21, depending on the state and the financial institution.

High-yield savings accounts pay significantly more interest than traditional savings accounts. Current rates vary by institution and change frequently, but high-yield accounts often pay between 4% and 5% annual percentage yield (APY), while regular savings accounts typically pay less than 1%. For a minor saving money from a job, gifts, or allowance, this difference adds up over time.

The adult custodian can deposit money, withdraw funds, and manage the account, but the money legally belongs to the minor. Once the minor reaches the age of majority, they take full control. Some institutions allow the minor to view the account and make deposits before that age, depending on their policies.

Key Takeaways

  • A parent or legal guardian must open and manage a custodial high-yield savings account for a minor, since minors cannot sign binding contracts with banks.
  • High-yield savings accounts currently pay between 4% and 5% APY, compared to less than 1% for regular savings accounts, making them a better choice for saving money over time.
  • The minor owns the money in the account, but the custodian controls it until the minor turns 18 or 21, depending on state law and the bank's rules.
  • Most online banks and some traditional banks offer custodial high-yield savings accounts, though features and minimum balances vary by institution.

How custodial accounts work and what happens at age of majority

When a parent or guardian opens a custodial account, the bank creates it under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), depending on your state. These are legal frameworks that protect the minor's ownership of the money while allowing an adult to manage it. The account title will read something like "John Smith, as custodian for Sarah Smith."

The custodian has full control during the minor's childhood. They can deposit paychecks, withdraw money for the minor's needs, and make decisions about where the money sits. The minor cannot withdraw funds without the custodian's permission, even if they know the password or account number.

When the minor reaches the age of majority, control transfers automatically. The custodian's role ends, and the minor becomes the sole account holder. At that point, the minor can withdraw all the money, close the account, or keep it open and continue saving. Some banks require the young adult to visit in person or sign new paperwork to complete the transfer, while others handle it automatically.

Which banks offer custodial high-yield savings accounts

Most online banks that offer high-yield savings accounts also offer custodial versions. Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings, and Discover Bank all have custodial high-yield savings options. Traditional banks like Chase and Bank of America offer custodial savings accounts, though their rates are typically lower than online banks.

The specific features vary. Some banks allow the minor to view the account online once they reach a certain age—often 13 or 14—while others keep the account visible only to the custodian. Some require a minimum deposit to open, while others do not. A few banks charge monthly fees for custodial accounts, though many do not.

Before opening an account, compare the current APY, any minimum balance requirements, monthly fees, and whether the minor can view or access the account online. Rates change frequently, so the highest-paying option today may not be the same next month. Check the bank's website or call to confirm the current rate and terms.

Tax implications for custodial high-yield savings accounts

Interest earned in a custodial account is taxable income to the minor, not the custodian. The bank will send a 1099-INT form showing the interest earned if it exceeds $10 in a calendar year. The minor may owe federal income tax on that interest, depending on how much they earned from all sources.

For 2024, a minor with unearned income (like interest from savings) can earn up to a certain threshold before owing federal income tax. This threshold changes yearly and depends on whether the minor is claimed as a dependent on a parent's tax return. A parent or guardian should consult a tax professional or review IRS Publication 929 to understand the minor's specific tax situation.

Some states also tax interest income, so state tax rules may apply as well. The interest earned is small in most cases—a minor with $1,000 in a 5% APY account earns about $50 per year—but it is still technically taxable and should be reported.

Alternatives if a minor wants to save without an adult account holder

A minor cannot open a high-yield savings account without an adult, but there are other ways to save. Some banks and credit unions offer teen checking or savings accounts designed for minors ages 13 and up, though these typically do not pay high interest rates. These accounts let the teen manage their own money with limited oversight from a parent.

A minor can also save cash at home or ask a parent to help them invest in a custodial brokerage account, which can hold stocks, bonds, or funds. These accounts may offer higher long-term growth than savings accounts, though they carry more risk and are not insured by the FDIC.

Once a minor turns 18, they can open their own high-yield savings account without a custodian. At that point, they have full control and can choose any bank or online institution that meets their needs.

How to open a custodial high-yield savings account

The process is similar to opening a regular savings account. The custodian visits the bank's website or app, selects the custodial savings option, and provides their own identification and Social Security number. They will also need the minor's full name and Social Security number. Some banks require an in-person visit, while most online banks allow you to complete the entire process online.

The custodian will need to verify their identity, often through a driver's license or passport. They may also need to answer security questions or provide a phone number for verification. Once the account is open, the custodian can fund it by transferring money from another bank account, depositing a check, or setting up automatic transfers.

The minor does not need to be present to open the account, though some banks may require the minor's consent or signature if they are older. Check with your chosen bank about their specific requirements and whether they allow minors to view or manage the account online.

What to consider when choosing a custodial high-yield savings account

Start by comparing APY across banks. A difference of 0.5% may seem small, but it compounds over time. A $5,000 balance earning 4.5% APY grows to $5,225 in one year, while the same balance at 4% grows to $5,200—a $25 difference. Over several years, the gap widens.

Check whether the bank charges monthly maintenance fees or requires a minimum balance. Some banks waive fees for accounts under $25,000, while others charge $5 to $10 per month. A monthly fee can eat into the interest earned, especially on smaller balances.

Consider whether the minor will want to view the account as they get older. If the minor is 16 or 17, having online access to see their balance and understand how interest works can be educational. If the minor is very young, the custodian may prefer to manage the account privately.

Finally, confirm that the bank is FDIC-insured. This protects the money in the account up to $250,000 if the bank fails. Most major banks and online banks carry FDIC insurance, but it is worth verifying before you open an account.

Frequently Asked Questions

Can a minor withdraw money from a custodial high-yield savings account without permission?

No. The custodian controls all withdrawals until the minor reaches the age of majority. The minor cannot withdraw funds even if they know the account number or password. The custodian decides when and how much money the minor can access.

What happens to the account when the minor turns 18?

Control of the account transfers to the young adult automatically at the age of majority, which is 18 in most states but 21 in a few. The custodian's role ends, and the young adult becomes the sole account holder. They can then withdraw all the money, close the account, or continue saving.

Do I need to file taxes on interest earned in a custodial account?

Yes, if the interest exceeds $10 in a calendar year, the bank sends a 1099-INT form. The minor may owe federal income tax on that interest, depending on their total income and whether they are claimed as a dependent. A parent should review IRS Publication 929 or consult a tax professional to determine the minor's tax obligation.

Can a minor have more than one custodial high-yield savings account?

Yes. A minor can have multiple custodial accounts at different banks, each opened by a parent or guardian. However, interest earned across all accounts is still taxable, and the total must be reported on the minor's tax return if it exceeds the filing threshold.

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

No. A custodial high-yield savings account is a regular savings account that the minor owns and can use for any purpose once they reach adulthood. A 529 plan is a tax-advantaged education savings account designed specifically for college expenses. They serve different purposes and have different rules.