Yes, you can open a bank account for your grandchild. No federal law reserves that role for parents, and most banks and credit unions will let a grandparent set one up. The choice that actually matters is the account type, because it decides who owns the money, who controls withdrawals, how earnings are taxed, and when your grandchild gains full access.
Can a Grandparent Be the One to Open It
Under the federal Customer Identification Program, whichever adult opens an account for a minor is treated as the bank’s “customer” for identity-verification purposes, so the bank verifies you, not your grandchild.1FinCEN. FAQs: Final CIP Rule Whether the bank accepts a grandparent rather than a parent as custodian is a matter of that bank’s own policy. Federal regulators have said the decision “is a determination that a financial institution should make in consultation with legal counsel.”2Federal Financial Institutions Examination Council. SR 15-5 Guidance on Youth Savings Programs
In practice, most banks accept grandparents on custodial savings accounts. A smaller number limit the custodian role to legal guardians, particularly on accounts that carry a debit card or overdraft exposure. Call ahead to confirm the bank’s rules and to ask whether a parent’s signature is also required.
Four Account Types to Choose From
Each of the common options answers a different goal. Read them against what you actually want: give the money to the child now, save specifically for college, keep control during your life, or share an everyday account.
Custodial Accounts (UTMA and UGMA)
Accounts under the Uniform Transfers to Minors Act or the Uniform Gifts to Minors Act are the most widely used structure. Every state, the District of Columbia, and the U.S. Virgin Islands has adopted some version of the UTMA. The child is the legal owner of the assets from the moment you deposit them. You serve as custodian and manage the money on their behalf until they reach the transfer age set by state law.
Every deposit is an irrevocable gift. You cannot take the money back or redirect it to someone else, and you have a fiduciary duty to use the funds only for your grandchild’s benefit. Misusing custodial money can expose you to personal liability. These accounts can hold cash, stocks, and bonds, and under the UTMA they can also hold other property such as real estate.
529 Education Savings Plans
A 529 is a tax-advantaged investment account built for education costs. You own and control it. You can change the beneficiary to another grandchild or qualifying family member, and your grandchild never automatically takes over at a set age. Contributions grow tax-deferred, and withdrawals for qualifying education costs (tuition, room and board, books, and K–12 expenses up to $10,000 per year) are federal-tax-free.
If your grandchild does not use all of the money for school, you have options beyond paying tax on a non-qualified withdrawal. Starting in 2024, unused 529 balances can be rolled into a Roth IRA in the beneficiary’s name, subject to a $35,000 lifetime cap, annual Roth contribution limits, and a requirement that the 529 has been open for at least 15 years.3Internal Revenue Service. Publication 590-A, Contributions to Individual Retirement Arrangements
Joint Savings Accounts
A joint account gives you and your grandchild shared ownership. It is simpler than a custodial account: there is no separate custodial statute governing it, and either owner can generally deposit or withdraw. The trade-off is less protection, because the money is not ring-fenced for the child, and you remain responsible for any tax reporting on interest earned. This is the better fit if you want your grandchild to have hands-on experience managing money, since the debit-card and shared-access limits that apply to custodial accounts do not apply here.
Payable on Death Accounts
A Payable on Death (POD) account, sometimes called a Totten trust, is your account during your lifetime. You keep full control over deposits and withdrawals, and your grandchild is named only as the beneficiary. When you pass away, the balance transfers directly to them without going through probate. This structure fits when your goal is leaving money to a grandchild rather than building savings they can reach sooner.
Documents You Will Need
The bank will collect your name, date of birth, address, and an identification number such as your Social Security number.4eCFR. 31 CFR Part 1020 – Rules for Banks Bring a government-issued photo ID, such as a driver’s license or passport, to verify that information.5Office of the Comptroller of the Currency. What Type(s) of ID Do I Need to Open a Bank Account?
For the child, you will need a full legal name, date of birth, and a taxpayer identification number, typically a Social Security number. The bank needs this so it can issue a Form 1099-INT at year-end for any interest the account earns.6Internal Revenue Service. Form 1099-INT If your grandchild does not yet have a Social Security number, common with newborns, an Individual Taxpayer Identification Number may be accepted. Some banks will also accept a passport number or other government-issued ID number.7Consumer Financial Protection Bureau. Can I Get a Checking Account Without a Social Security Number?
Every name and number should match official documents exactly. A mismatched Social Security number can trigger IRS reporting problems and delay the opening.
How the Money Is Taxed
Deposits into a custodial or joint account are gifts for federal tax purposes. In 2026, you can give up to $19,000 per grandchild without filing a gift tax return, and a married couple can give up to $38,000 per grandchild by splitting the gift.8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Amounts above those figures count against your lifetime gift and estate tax exemption but rarely produce an actual tax bill.
Interest, dividends, and other earnings inside the account belong to the child for tax purposes. For 2026, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at the parent’s rate under what is commonly called the “kiddie tax.”9Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax) A basic savings account earning modest interest is unlikely to hit that threshold, but it becomes more relevant on an account holding higher-yielding investments.
A 529 works differently. Earnings grow tax-deferred, qualified withdrawals are tax-free at the federal level, and some states offer an income tax deduction or credit for contributions.
Effect on Financial Aid
The account type also shapes your grandchild’s eligibility for college aid. On the FAFSA, custodial accounts are reported as the student’s asset regardless of who opened them.10Federal Student Aid. Current Net Worth of Investments, Including Real Estate Student-owned assets reduce aid eligibility at a rate of up to 20 percent of the balance, so a $10,000 custodial account could cut aid by up to $2,000 per year.
A 529 gets more favorable treatment. Under the current FAFSA formula, a grandparent-owned 529 is reported as a parent asset when the student reports parent information, which is assessed at a much lower rate of up to about 5.6 percent.11Federal Student Aid. Free Application for Federal Student Aid (FAFSA) 2026-27 Distributions from a grandparent-owned 529 also no longer count as student income on the FAFSA, removing a penalty that existed under the old form. If aid eligibility matters to you, a 529 generally has less impact than a custodial account.
When Your Grandchild Takes Control
For custodial accounts, your management role ends when your grandchild reaches the transfer age set by state law. In most states that age is 21, some set it at 18, and several let the person who created the account choose a later age, often up to 25. At that point the full balance must be transferred into your grandchild’s sole name, and they can spend it however they choose. No one can place restrictions on the funds after the transfer.
This is one of the biggest differences between a custodial account and a 529 plan. With a 529, you keep control regardless of your grandchild’s age. If you are concerned about a young adult handling a lump sum, a 529 or a formal trust gives you more control than a custodial account does.
Naming a Successor Custodian
A custodial account can run for decades, so plan for what happens if you cannot manage it. Under most states’ versions of the UTMA, you can designate a successor custodian, either a backup adult or a trust company, by signing a written designation in front of a witness. It takes effect only if you resign, pass away, or become incapacitated.
Without a successor in place, the process gets more complicated. Depending on state law, the child’s guardian may automatically step in, or a court may need to appoint a new custodian. A few minutes at the opening avoids that uncertainty later.
FDIC Insurance Coverage
Money in a custodial account is FDIC-insured as a single account belonging to the minor, not as part of your own deposits. Your grandchild’s custodial account is covered up to $250,000 per insured bank, separate from any accounts you hold in your own name.12Federal Deposit Insurance Corporation. Your Insured Deposits If your grandchild has custodial accounts at more than one bank, each bank provides its own $250,000. Joint accounts and POD accounts fall under different FDIC ownership categories, each with its own $250,000 limit.