How to open a savings account for a grandchild

Whether you’re a brand-new grandparent or your grandkids are getting into their teenage years, opening a savings account for a grandchild is a practical (not to mention generous) way to help them get a head start on their financial journey. You may be wondering what the best way to save money for a grandchild is so you can help with college tuition, a down payment on their first home or other expenses in their future. Opening a savings account for your grandchild is a great place to start.

So, what do you need to know about how to open a savings account for a grandchild? Here are the main things to keep in mind.

Opening a savings account for a grandchild can have many advantages, says Chanelle Bessette, a personal finance writer. “The savings you gift them can go toward college, wedding expenses, starting a business or another major purchase,” she says. “It can also help them avoid taking on debt that would otherwise hold them back as they move through life.”

Bessette breaks down the three benefits of opening savings accounts for grandchildren:

Even if the money isn’t used for a big life event, one major benefit of a savings account for a grandchild is that it can teach them financial responsibility, Bessette says. As the child gets older, you or their parents can use the savings account as a tool to help them learn how to make smart financial decisions.

For example, Bessette gives the example that your grandchild might want to attend both swim camp and cheerleading camp. Rather than simply paying for both without question, you could encourage them to research the cost of summer camps in the area, look into scholarship opportunities and even get a summer job to cover a certain amount of the cost if needed. Having access to some money of their own can help young people learn a variety of important lessons about money while benefiting from the guidance of an adult, Bessette adds.

Another benefit of opening a savings account for a grandchild is the flexibility a savings account affords. You have the freedom to choose how much and when to add money to the account. 

While Bessette recommends having a deposit schedule in mind and communicating it to your grandchild’s parents (more on that below), you are free to update your plan as things change. “Maybe you want to add more, or maybe you need to pull back. Savings accounts for grandchildren allow you that flexibility,” Bessette says.

Savings accounts for grandchildren can grow over time thanks to compound interest. Especially if you’re saving over a long period—for example, from a child’s first birthday to their 18th—the money has a good chance to grow. With compound interest, you earn interest on both your principal—in other words, your bank balance—and any interest you receive. As a result, your savings can really add up, especially if you have a nice amount of money in the account. For example, a Kids Savings Account offers a high rate to help your balance grow.

Now that you have a grasp of the benefits of savings accounts for grandchildren, it’s time to ask yourself a few questions before opening one.

As you determine the best way to save money for a grandchild, Bessette says there are some key questions to consider:

Before you open a savings account for your grandchild, you’ll need to decide who the custodian will be. Specific rules can vary depending on the bank.

Bessette says that everyone’s situation is unique. If your relationship with the grandchild’s parents is strong, you might consider making one of them the custodian. “You don’t have to necessarily be an owner on it as a grandparent,” Bessette points out. “You could just have the account information and funnel some money into it whenever the mood strikes.” However, many grandparents choose to make themselves the custodian and choose what’s known as a successor custodian to be a backup manager of the account. Ultimately, the choice is yours.

Bessette recommends having a conversation with your grandchild’s parents to set expectations before opening the account. You might choose to add to your savings account for a grandchild on their birthday or holidays. Or, if you have a stream of income, you might add a portion of each paycheck. Think about whether you’re able to add money monthly, annually or now and then, and communicate your plans before you open the account.

You should also consider if you have any specific goals for the money, Bessette recommends. For instance, you might decide that the savings account for your grandchild should only be used to pay for their college tuition. Or you could leave it more open-ended and have conversations with your grandchild as they get older about how they’d like to use the funds. Again, communication is key so that everyone knows the plan from day one, Bessette says.

You’re probably wondering, how can I open a savings account for my grandchild? There are several options as you consider the best way to save money for a grandchild:

An online savings account can be an excellent place to set aside money for your grandchild’s future—even if you already have a savings account of your own. After all, having multiple savings accounts is a way to build wealth and reach financial goals. Online savings accounts are easy to open, and it’s simple to log in and review your account information and transfer money between accounts. With Capital One Recurring Transfers or Autopilot, you can grow your savings automatically by scheduling recurring transfers that fit your specific budget and timeline.

“You could set up your own savings account that’s earmarked to give to your grandchildren at some point,” Bessette says. “Then once you hit that point, you could work with their parents to set up a joint account between them and their child so they can make sure the money is doled out appropriately.”

Some banks offer savings and checking accounts for children. Kids’ savings accounts must be opened by a parent or guardian who will be a joint owner. These accounts typically have more restrictions than an adult bank account. But, like a regular savings account, children’s savings accounts allow you to earn interest on the money. Teaching your kids about money is easier when they can see it working. Capital One’s Kids Savings Account offers a strong rate so your children can watch their balance climb.

Custodial savings accounts allow an adult to open an account for a child and manage it until the child reaches the age of majority. With some custodial accounts, the child won’t have access to the account—or even information about it—until they turn 21. (Of course, you can share information about the account with them before that time if you like.) Custodians have full control over the account until that time, when coming-of-age documentation is sent to the grandchild and account ownership is given to them.

No matter which type of account you choose, look for one that offers a good interest rate. “Try to get the greatest return, especially since you’ll probably be saving for a very long period of time,” Bessette advises.

Now, let’s talk about how to open a savings account for a grandchild. The process of opening a savings account will vary slightly based on your bank and the type of account you open. But in general, these are the steps you’ll need to take to open a savings account for a grandchild:

The first step for how to open a savings account for a grandchild? It’s simple. Complete an application. The application may ask for personal identifying and contact information, including your name, date of birth, address, phone number, email address and tax identification number (TIN).

When opening savings accounts for grandchildren, you may have the option of an individual account or a joint account. If you choose a joint account—to share with the child’s parent, for example—you’ll need to enter the personal information of each account holder.

If the savings account has a minimum deposit requirement, or requires the account to be funded, you’ll need to deposit at least that much money by initiating a bank transfer, sending or depositing a check, or using a wire transfer.

Now that you know how to open a savings account for a grandchild, you can decide whether it’s the right choice for them. It’s a generous thing to do that can help them in the future. “If you can afford it, it’s a great way to set up your grandchild for success,” Bessette says. 

Sure, a savings account for your grandchild can help them financially. But it can also teach them real financial skills that last a lifetime. Before opening one, think about who will manage the account, how often you’ll add money and how you want the money used. The longer the money stays put, the more compound interest works in your grandchild’s favor. You can find a savings account that fits how much involvement you want.

With a Capital One Kids Savings Account, your child can earn a high rate on their savings with no monthly fees or minimums.