Best Custodial Accounts

Start building your child’s financial future with Charles Schwab

By Jessica Martel
Updated January 04, 2023
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Fact checked by Matthew M Klammer
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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.

The Best Custodial Accounts for 2023

Best Overall : Charles Schwab

Charles Schwab

Charles Schwab
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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

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.

Best for Mutual Funds : Vanguard

Vanguard

Vanguard
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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.

Best Robo Advisor : Acorns

Acorns Logo

Acorns Logo
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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.

Best Educational Resources : Loved

Loved logo

Loved logo
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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.

Best Custodial Bank Account : Ally Bank

Ally Bank

 Ally Bank
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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.

Final Verdict

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. 

Compare the Best Custodial Accounts

Company  Account Type Annual Fees Minimum Opening Deposit Highlight Feature
Charles Schwab
Best Overall		 Brokerage account $0 $0 Purchase fractional shares for as little as $5
Vanguard
Best for Mutual Funds		 Brokerage 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 Advisor		 Brokerage account  $5 per month $0 Open a kid-friendly investment account in under 3 minutes
Loved
Best Educational Resources		 Brokerage account  $0 $0  Can invest as little as $1 at a time
Ally Bank
Best Custodial Bank Account		 Online savings account $0  $0  APY of 0.50% 

How Does a Custodial Account Work?

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.

Do Custodial Accounts Get Taxed?

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.

When Can You Withdraw Money From a Custodial Account?

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.

Is a Custodial Account a Good Idea?

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.

Methodology 

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.

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Getty Images / Thitiphat Khuankaew / EyeEm
Article Sources
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  1. FDIC. "National Rates and Rate Caps - FDIC."

  2. Ally Bank. "Online Savings Account."

  3. IRS. "Publication 929 (2021), Tax Rules for Children and Dependents."

  4. IRS. "Topic No. 553 Tax on a Child's Investment."