We independently evaluate all recommended products and services. If you click on links we provide, we may receive compensation. Learn more. A custodial account is a financial account that is opened and controlled by someone over 18 for a minor. Often, a custodial account is opened by a parent for their child. Grandparents, other family members, and even friends can also open a custodial account for a minor. There are two main types of custodial accounts: the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). The largest difference between the UGMA and UTMA is that the UTMA covers more assets. For instance, with a UGMA account, you can include assets such as stock, bonds, and mutual funds. With a UTMA, you can also include assets such as real estate, jewelry, and art. Custodial accounts can be savings or investment accounts and are usually held at a bank, brokerage, or other financial institution. Once the child comes of age (usually between the age of 18 and 25), they take over ownership and control of the account. The best custodial accounts are those that charge no account fees, no minimum initial deposit, and allow for fractional shares. Best Custodial Accounts Best Custodial Accounts Charles Schwab is our choice for the best overall custodial accounts because of its longevity in the industry, its strong customer support, and its minimal fees. Pros Long company history No contribution limits No minimum open deposit Cons No cryptocurrency trading The Charles Schwab Corporation was founded in 1971 in San Francisco. At the time, it was a traditional brokerage company, but in 1974 it pioneered many things in the discount brokerage business. Its long history in the industry in addition to its low fees is why it wins as our choice for the best custodial account. The Schwab One Custodial Account is a brokerage account that comes with investment help and guidance. With the Schwab One Custodial Account, there are no contribution limits, no minimum opening deposit is required, no maintenance fees, and no commissions for online stock and ETF commissions. Additionally, you get access to 24/7 service and support. With the Schwab One Custodial Account, you also get all of the benefits associated with the Schwab One Brokerage Account. This includes the ability to buy and sell stocks, mutual funds, ETFs, and other securities. You can get access to investment research, tools, and strategies. With Schwab Stock Slices, you can use your custodial account to purchase fractional shares starting at only $5. Read the full Charles Schwab Review. We chose Vanguard as the best custodial account for mutual funds because of its broad offerings of mutual funds. Pros No enrollment, transfer, or advisor fees Low-cost mutual funds Cons No fractional shares Vanguard has been around since 1975 and is one of the largest investment management companies in the world with about $8.3 trillion in global assets. With Vanguard, you can choose from a variety of accounts including individual and joint accounts, 529 savings plans, as well as UGMA and UTMA custodial accounts. A Vanguard custodial account offers customers a broad lineup of mutual funds, some of the lowest expense ratios in the industry, and custom scheduling to fund your custodial account. Vanguard is our choice for the best custodial account for mutual funds because it is known for its low-cost index fund products. A Vanguard brokerage account allows you to purchase Vanguard’s low-cost mutual funds commission-free. With Vanguard, you can choose to open a new custodial account or do a full or partial transfer from an existing account. A custodial account has no enrollment, transfer, or advisor fees. However, you will be charged $20 for each brokerage account. As the primary account owner, you can avoid this fee by signing up for Vanguards e-delivery service. This service allows you to receive documents such as your statements and fund reports electronically. Read the full Vanguard Review. Acorns is our pick for the best Robo advisor because of its easy-to-set-up custodial accounts, breadth of helpful educational resources, and access to family financial advice. Pros Good educational resources Access to a full-financial wellness system Easy to set up custodial accounts Cons Flat fee can be high for small account balances Acorns was launched in August 2014 with the goal of making investing accessible to everyone. Today, Acorns serves over nine million users. We chose Acorns as the best Robo Advisor for custodial accounts because of the Acorns Early investing feature for kids. A UTMA or UGMA account can be opened for a minor in under three minutes. Early is built into the larger Acorns platform which offers a full financial wellness system. You can set up custodial accounts for your kids, personal investment accounts for yourself, as well as retirement accounts, and checking accounts all for a flat fee of $5 per month. There is no account minimum for Early. The Early investment account for kids allows you to add multiple kids at no added costs. You can also set up automatic recurring investments, get access to exclusive bonus investments, and take advantage of family financial advice. The Acorns website also offers a wide selection of helpful educational resources to help you and your family learn about everything from investing basics, to taxes, micro-investing, and inflation. You can also access Grow Magazine—a partnership between Acorns and CNBC. Grow Magazine offers additional information on topics of saving, investing, earning, spending, and borrowing. Loved is our choice for the best educational resources for custodial accounts because its mission is to empower children and families through financial education and opportunities. Pros Good educational resources Commission-free investing Cons Not a long history or track record Goal setting feature is weak Limited stock options Loved is on a mission to give your young ones the information and support they need to lead their most successful life. Founded in 2017, Loved is a relative newcomer to the mobile investment platform space. However, it is specifically focused on providing parents and other adults with the resources they need to support their children’s financial education. Loved offers commission-free custodial accounts. With a Loved custodial account, you can start investing for anyone under 18 years old with as little as $5. Getting started is easy and you can be ready to invest in a matter of minutes. You can build a portfolio based on different themes, companies, or specific goals. Financial literacy is a priority at Loved. The company provides a “Learn” section on its website where you can access tons of helpful articles about custodial accounts, investing, and saving for your children’s education and future. Ally Bank is our choice for the best custodial bank account because of its Online Savings Account that comes with no monthly maintenance fee, no minimum balance, and a generous APY. Pros No monthly maintenance fee No minimum balance requirements APY of 0.50% Cons No joint accounts for minors Ally Bank, formerly GMAC, a division of GM, opened its doors in 1919. While its initial focus was auto financing, Ally has since expanded to online banking, credit and lending, as well as wealth management. Ally Bank is our choice for the best custodial bank account because it offers Online Savings Accounts that can be easily opened for minors. Its online savings account comes with no monthly maintenance fees and no minimum balance requirements. You also can earn almost 9x the national average for APY (0.06%), as Ally offers an APY of 0.50%. To help keep your custodial account organized, Ally offers organizational tools that let you divide your savings up into using multiple buckets. You can divide up money for your child’s education, money for braces, or anything else your child needs. The money in your Ally Online Savings account earns money with interest compounded daily. And all deposits are insured by the FDIC up to the maximum allowed by law. If you have any questions or need assistance, take advantage of Ally’s 24/7 customer support. You can reach out by calling, online chat, or email. Read the full Ally Bank Review. Custodial accounts can be a great vehicle for saving for your children's future. With no contribution limits and the ability to make withdrawals at any time, custodial accounts can be a flexible and convenient way to save. However, if you are thinking about using a custodial account for saving for college, consider the limitations of these accounts. A custodial account can negatively impact your child’s ability to collect financial aid if they decide to go to school. All of the providers on this list provide custodial accounts that can be used to save for your child's future. Charles Schwab is our choice for the best overall custodial account because of its strong customer support, low fees, and decades of experience in the industry. A custodial account is opened and managed by an adult for a minor. A custodial account requires a fiduciary relationship between the minor and the adult custodian. This means that the custodian must make financial decisions that are in the best interest of the child who is named on the account. The custodian is responsible for managing the account and making all financial decisions until the minor comes of age. At that time, the minor takes control. There are two main types of custodial accounts. The Uniform Gift to Minors Act (UGMA) allows minors to own gifts including cash, stocks, bonds, mutual, funds, and securities. The Uniform Transfer to Minors Act (UTMA) is similar to the UGMA but also allows minors to own other types of property including real estate. Custodial accounts do get taxed. However, a benefit of the UGMA and UTMA custodial account is that when you invest money on a child’s behalf, the income gets taxed to the child rather than the custodian. Since most children have little or no income, they can get taxed at a lower rate than their parents. Unearned income from $0 to $1,100 is tax-free if the child has earned no income. Unearned income above $2,200 is taxed at the parent's marginal tax rate if the child has no earned income. Withdrawals can be made from a custodial account at any time. However, you can only make a withdrawal if it is in the best interest of your child. Meaning, the withdrawal must be used to make purchases that directly benefit the minor. For instance, purchasing school supplies for the minor. A custodial account can be a great way to save up money for your child’s future. A custodial account provides a lot of flexibility for how you want to invest and use the funds as opposed to a 529 account which has specific rules around how you can spend the money. However, there are some things to consider before deciding if a custodial account is right for you. If you think your child will need to apply for financial aid, the money in a custodial account is weighed heavily against their financial aid eligibility as assets in a custodial account will count as your child’s assets. This means if you have a lot of money saved up for your child in a custodial account, they could miss out on thousands of dollars in financial aid. Also consider that as soon as your child turns of age (often 18), they take full control of the account. For some parents, there may be a concern that their child is not ready to take on this kind of financial responsibility. If this is the case, a custodial account might not be the right fit. We researched 10 companies offering custodial accounts and evaluated each on minimum opening deposit as well as fees, including account maintenance fees, transfer fees, and enrollment fees. We also considered the companies’ history, customer service, and ease of use of the companies’ websites or apps. Lastly, we also looked at the educational resources provided by the different companies. Financial literacy is important for adults and their children who will be taking control of their custodial accounts, usually between 18 and 21 years of age. Our review prioritized companies with low fees, strong educational resources for adults and children, as well as convenient and easy-to-use platforms. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Related ArticlesThe Best Custodial Accounts for 2023
Best Overall : Charles Schwab
Best for Mutual Funds : Vanguard
Best Robo Advisor : Acorns
Best Educational Resources : Loved
Best Custodial Bank Account : Ally Bank
Final Verdict
Compare the Best Custodial Accounts
Company Account Type Annual Fees Minimum Opening Deposit Highlight Feature Charles Schwab
Best OverallBrokerage account $0 $0 Purchase fractional shares for as little as $5 Vanguard
Best for Mutual FundsBrokerage account $20 annual account service fee (can be waived) Minimum initial investment of $3,000 for most Vanguard mutual funds Vanguard's average mutual fund expense ratio is 0.10%. The industry average mutual fund expense ratio is 0.60%. Acorns
Best Robo AdvisorBrokerage account $5 per month $0 Open a kid-friendly investment account in under 3 minutes Loved
Best Educational ResourcesBrokerage account $0 $0 Can invest as little as $1 at a time Ally Bank
Best Custodial Bank AccountOnline savings account $0 $0 APY of 0.50% How Does a Custodial Account Work?
Do Custodial Accounts Get Taxed?
When Can You Withdraw Money From a Custodial Account?
Is a Custodial Account a Good Idea?
Methodology
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See Also
How do you start saving for your grandchildren?Saving for your grandchildrenSaving Money For Your Grandchild - Money Tips From SagaWhat's the best way to leave money to my children and grandchildren?:fill(transparent):max_bytes(150000):strip_icc()/vanguard-71facd2aa78f40a3be3a4c7e78f477e7.png "The Best Custodial Accounts for 2023 (2)")
:fill(transparent):max_bytes(150000):strip_icc()/Acorns-053ebabcba3d4f9eb5ad8134f4818b9e.jpg "The Best Custodial Accounts for 2023 (3)")
:fill(transparent):max_bytes(150000):strip_icc()/Loved-04d3844522954c47919c362b5af044c2.jpg "The Best Custodial Accounts for 2023 (4)")
:fill(transparent):max_bytes(150000):strip_icc()/Ally-3518238e7ab24304a723151ea39a6780.jpg "The Best Custodial Accounts for 2023 (5)")
Certificate of Deposits (CDs)How to Open a CD for a Child
Saving for CollegeTypes of College Savings Plans
Best Robo Advisor CompaniesWealthsimple vs Betterment: Which Is Best for You?
BrokersCharles Schwab vs. Vanguard
Best Robo Advisor CompaniesBetterment vs. Charles Schwab Intelligent Portfolios: Which Is Best for You?
Financial Literacy Resource CenterInvesting for Teens: What They Should Know
FAQs
The Best Custodial Accounts for 2023? ›
Best Robo Advisor Acorns
We chose Acorns as the best Robo Advisor for custodial accounts because of the Acorns Early investing feature for kids. A UTMA or UGMA account can be opened for a minor in under three minutes. Early is built into the larger Acorns platform which offers a full financial wellness system.
NerdWallet's Best Custodial Accounts of September 2023
- Vanguard.
- TD Ameritrade.
- Firstrade.
- Ally Invest.
- E*TRADE.
- Charles Schwab.
- Merrill Edge® Self-Directed.
- Fidelity® Youth Account.
Sep 1, 2023
Best Robo Advisor Acorns
We chose Acorns as the best Robo Advisor for custodial accounts because of the Acorns Early investing feature for kids. A UTMA or UGMA account can be opened for a minor in under three minutes. Early is built into the larger Acorns platform which offers a full financial wellness system.
Custodial accounts may be established for a variety of purposes, including to save for education expenses, build up an investment portfolio and hold gift assets for a child. The assets held in a custodial account may include cash, stocks, bonds, real estate and other types of property.
How to invest $1,000 for my child? ›Investing for Kids: 5 Account Options
- Custodial Roth IRA. If your child has earned income from a part-time job, they may qualify for a custodial Roth IRA. ...
- 529 Education Savings Plans. ...
- Coverdell Education Savings Accounts. ...
- UGMA/UTMA Custodial Accounts. ...
- Brokerage Account.
Sep 1, 2023
Bank of New York Mellon – $43 trillion in assets. State Street Corporation – $38.2 trillion in assets. J.P. Morgan – $28.6 trillion in assets.
What type of account is best for a child? ›Here are eight financial accounts to open with your kids, when to open them, and how to use them for maximum effect in creating generational wealth.
- 529 College Savings Plan. ...
- Checking Account. ...
- High-Interest Saving Account for an Emergency Fund. ...
- Roth IRA. ...
- Taxable Brokerage Account. ...
- Credit Cards. ...
- Credit Builder Loan.
The child beneficiary technically owns the custodial account — not the custodian. It's the beneficiary's Social Security number that is attached to the account. Thus, the child is the one who technically needs to pay taxes.
What is better 529 or custodial account? ›Once your child reaches your state's age of majority, they can use the money in their custodial brokerage account for any purpose of their choosing—without penalty. This means funds held in a custodial brokerage account offer more flexibility than those held in 529 accounts.
Do millionaires use robo-advisors? ›Nearly 7 in 10 Millennial millionaires have some money in robos or automated portfolios. Moreover, nearly 20% of Millennial and Gen Z households who know the investment products they own have some money in robos versus only 13% of Gen X and only 2% of Boomer+ households (Boomers and older).
What is the best way to invest money for kids? ›
You can open a custodial brokerage account at a bank or brokerage firm. A custodial account can be a great way to save on a child's behalf, or to give a financial gift. Basically, these are easy-to-open accounts used to invest in stocks, bonds, mutual funds, and more, all to give your child a better future.
What are the disadvantages of a custodial account? ›Disadvantages of Custodial Accounts
A minor's ownership of the custodial account can be a double-edged sword. Since the holdings count as assets, they may reduce a child's financial aid eligibility when they apply for college. 3 It could also reduce their ability to access other forms of government or community aid.
Summary of the Best Investment Accounts For Kids
- Custodial Roth IRA: Best Account Without an Age Limit.
- 529 College Saving Plans: Best for College Funds.
- UTMA/UGMA Accounts: Best for Flexibility.
- Coverdell Education Savings Accounts: Best for Parents of Disabled Children.
- Certificates of Deposit: Safest Investment Option.
Mar 21, 2023
7 Ways to Invest $10,000
- Max Out Your IRA.
- Contribution to a 401(k)
- Create a Stock Portfolio.
- Invest in Mutual Funds or ETFs.
- Buy Bonds.
- Plan for Future Health Costs With an HSA.
- Invest in Real Estate or REITs.
- Which Investment Is Right for You?
Jun 21, 2023
For example, if you put $10,000 into a savings account with a 4% annual yield, compounded daily, you'd earn $408 in interest the first year, $425 the second year, an extra $442 the third year and so on. After 10 years of compounding, you would have earned a total of $4,918 in interest.
What is the best IRA for a child? ›In general, the Roth IRA is the IRA of choice for minors who have limited income now—as it's recommended for those likely to be in a higher tax bracket in the future. "If a child keeps [a Roth] until age 59½ (under today's rules), any withdrawal will be tax-free.
Can I open a custodial account at any bank? ›Examples of a Custodial Account
There are no annual account fees or minimum investment amounts. You can also open custodial deposit and checking accounts at most bank branches.
Choosing the Right Custodian for Your Firm
- A bank custodian versus a brokerage custodian – is there a difference? ...
- What are the provider's accounting and reporting capabilities? ...
- What types of assets do my clients hold, and in what types of accounts? ...
- What type of custody experience is important for my clients and my firm?
Best for: Banking options. Bank of America is a runner-up when it comes to custodial banking. They charge no fees for any account with more than $500, which again should not be a concern. If you are not transferring significant wealth over time there is no good reason to set up a custodial account.
Which bank is largest custodian? ›The below chart represents an in-depth overview of BNY Mellon's business segments. BNY Mellon is currently the world's largest custodian bank with over $43 trillion in assets under custody. Custodian banks are concerned with the protection of client assets.