How to Open a Savings Account for a Child: Custodial vs Joint

The two main setups: joint vs custodial

Banks use many names for kids' accounts: "youth savings," "minor savings," "teen account." Under the label, almost all of them are one of two legal setups.

UGMA is the Uniform Gifts to Minors Act. UTMA is the newer Uniform Transfers to Minors Act, which most states have adopted. Both let an adult hold property for a child without setting up a formal trust.

Who controls the money, and when it changes

The age of transfer for custodial accounts depends on the state and sometimes on how the gift was made. Your state's UTMA statute sets it, and the bank or brokerage can tell you which age applies to your account. Don't assume it is 18.

What you need to open the account

Federal Customer Identification Program rules require banks to collect, at minimum, a name, date of birth, address and identification number for each account owner. For U.S. persons, the ID number is usually a Social Security number. Banks then verify identity using their own procedures, so the exact list varies.

Have these ready before you start:

1. Your own ID. A driver's license, state ID or passport, plus your Social Security number.
2. The child's Social Security number. The bank may ask to see the card.
3. The child's date of birth and address. Some banks ask for a birth certificate or passport.
4. Proof you are the parent or guardian, if the bank asks. Rules vary.
5. An opening deposit, if the account has a minimum.

Many online banks only allow joint youth accounts with a parent or guardian, and some require the adult to already be a customer. Credit unions often have youth accounts too, usually after the family joins.

How FDIC insurance covers a child's account

FDIC insurance covers up to $250,000 per depositor, per insured bank, per ownership category. How a child's account is titled decides which category it lands in.

• Custodial (UTMA/UGMA) deposits are insured as the child's single-ownership funds, added to any other single accounts the child owns at that bank. They do not count against the custodian's own coverage.
• Joint deposits fall in the joint account category, where each co-owner's share of all joint accounts at that bank is insured up to $250,000.

Credit union deposits get similar coverage from the NCUA. For most kids' balances, limits are not a concern, but the category still matters if a family keeps large sums at one bank. See our FDIC insurance guide for how categories work.

Taxes on a child's interest

Interest on a custodial account is the child's income. A small amount usually means no tax. Once a child's unearned income, such as interest and dividends, passes a yearly threshold, the IRS "kiddie tax" can apply.

• Who it applies to. Children under 18, and in some cases 18-year-olds and full-time students under 24, depending on their earned income and support.
• How it works. Per IRS Topic 553, for KT_YEAR unearned income above KT_THRESH may be taxed at the parent's rate, using Form 8615.
• Parent election. In some cases a parent can report the child's interest on their own return with Form 8814 instead.

Thresholds are adjusted for inflation, so check the IRS page for the year you are filing. Interest on a joint account is usually reported under the primary owner's SSN. Our guide to taxes on savings interest explains Form 1099-INT and reporting.

How to compare kids' savings accounts

Rates on youth accounts vary widely, and many have small conditions. Check each of these on the bank's own disclosure page:

• Minimum to open and to earn interest. No-minimum accounts make sense for small gifts. See our guide to no-minimum savings accounts.
• Monthly fees, and whether they are waived for minors.
• APY and any balance cap. Some youth accounts pay their top rate only up to a set balance.
• Parental controls. Can you see activity, set alerts or approve withdrawals?
• Kid-friendly tools. A separate login or app view for the child, savings goals, or round-ups.
• What happens at 18. Does the account convert automatically, and to what?
• Insurance. Confirm the bank on FDIC BankFind or the credit union on the NCUA lookup.

Turning the account into a lesson

An account works best when the child can see it grow. A few low-cost ideas:

• Match deposits. Add a set amount for every dollar the child saves, such as 50 cents. It shows how "free money" works, like a workplace match later.
• Show the interest line. Look at the monthly statement together and point to the interest payment.
• Use goal jars at home. Separate jars for spending, saving and sharing make choices concrete for young kids. Move the "save" jar to the bank every month or two.
• Pick one goal. Write it on the jar or in the app, with the price and a target date.