Custodial accounts are typically checking, savings, or brokerage accounts that adults can open to help build wealth or transfer complex assets like real estate or fine art to a minor. The best custodial accounts are found on reliable, cost-effective platforms that also offer strong customer support and a rich selection of investment opportunities. According to our research, Charles Schwab offers the best custodial account due to its long track record, excellent customer support, and minimal fees. In addition, parents, family members, and friends can easily open an account for a minor without funding requirements or restrictions. We analyzed ten companies that offered custodial accounts and evaluated them on several factors, including fees, company history, educational resources, customer service, and many other features. Best Custodial Accounts for September 2024 Best Custodial Accounts for September 2024 The Bottom Line Compare Providers Choosing The Best Custodial Accounts FAQs How We Picked the Best Custodial Accounts Learn More Why We Chose It 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 & Cons Pros Long company history No contribution limits No minimum open deposit Cons No cryptocurrency trading Overview 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 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. Why We Chose It We chose Vanguard as the best custodial account for mutual funds because of its broad offerings of mutual funds. Pros & Cons Pros No enrollment, transfer, or advisor fees Low-cost mutual funds Cons Fractional shares are available only for ETFs Overview Vanguard, located in Valley Forge, Pennsylvania, has been around since 1975 and is one of the largest investment management companies in the world, with 8.2 trillion assets under management (AUM). 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. Vanguard is our choice for the best custodial account for mutual funds because it is known for its low-cost index fund products. However, it also offers customers an extensive lineup of mutual funds, stocks, bonds, ETFs, low expense ratios, and custom scheduling to fund your custodial account. 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 $25 for each brokerage account. As the primary account owner, you can avoid this fee by signing up for Vanguard's e-delivery service. This service allows you to receive documents such as your statements and fund reports electronically. Read the full Vanguard Review. Why We Chose It 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 & Cons 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 Overview Located in Irvine, California, Acorns was launched in August 2012 with the goal of making investing accessible to everyone. Today, Acorns serves over ten 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. The Early investment account 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. 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. Read the full Acorns Review Why We Chose It 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 & Cons Pros No monthly maintenance fee No minimum balance requirements APY of 4.20% Cons No joint accounts for minors Overview Ally Bank, formerly GMAC, a division of GM located in Detroit, Michigan, 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 nearly 5x the national average, as Ally offers an APY of 4.20%. To help keep your custodial account organized, Ally offers organizational tools that let you divide your savings up into 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. 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. When evaluating custodial accounts, it's essential for parents and guardians to prioritize accessibility, security, and suitability for their children's financial future. A user-friendly interface is crucial, allowing parents to easily manage and monitor the account on behalf of their children. Reliability is another key consideration, as parents rely on the custodial account to manage their children's finances responsibly and execute transactions accurately. It's imperative to choose a custodial account provider with a proven track record of reliability and trustworthiness in the industry. Custodial accounts can be a great vehicle for saving for your children's future. With no contribution limits and the ability for children to make qualified withdrawals at any time, custodial accounts can be a flexible and convenient way to save. However, if you are considering using a custodial account for college savings, 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 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. However, there are other options. Vanguard is our choice for mutual funds because of its extensive offering and low costs. Acorns is our pick for the best robo-advisor, while Ally is our pick for the best custodial bank account. Investopedia collected several key data points from several companies that offer custodial accounts, to evaluate the most essential factors for parents and guardians looking to open a custodial account. We used this data to review each custodial account for fees, minimum opening deposits, and other features to provide an unbiased, comprehensive review to ensure our readers make the right decision on the custodial account of their choice.Investopedia launched in 1999, and has been helping readers find the best custodial accounts since 2021. A custodial account is a unique financial account designed for minors to build and accumulate wealth under the responsibility of an adult. Generally, the account is opened by a parent for their child. However, grandparents, other family members, and 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 theUniform 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. UTMA and UGMA accounts are reserved for adults to transfer assets to minors. Deciding which account is best depends on the type of asset the adult wishes to transfer. UGMA accounts can only be utilized for simple assets such as cash, stocks, bonds, and mutual funds. However, UTMA accounts are better suited for more complex assets. In addition to being able to hold stocks, bonds, and mutual funds, UTMA accounts can also hold real property, such as real estate and collectibles. Parents and guardians should be mindful of state laws and how the asset transfer will impact the child's financial future when they reach the age of majority. Seeking advice from a financial advisor may be beneficial to understand tax advantages and obligations. The process of opening a custodial account for your child or close family member who is still a minor is similar to if you were opening an account for yourself. Generally, the custodial account will need basic information from you and the person you are opening the account for, such as: However, you may need to update financial information, such as an external bank account, to fund the custodial account. 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. 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. It's important to note that parents and guardians cannot make a withdrawal from a custodial account to cover obligatory expenses they are expected to provide for the child. Withdrawals from a custodial account cannot be used for living expenses, food, or clothes; those expenses fall onto the parent or guardian's responsibility and cannot be considered a benefit to the child. A good example of how money in custodial accounts can be used is buying a popular electronic device or sports equipment for the child's choice of sport. Remember, once money is deposited into a custodial account, the child owns money. Once the child reaches the age of majority and takes ownership of the account, they can spend that money how they see fit. Yes, custodial accounts do get taxed. However, a benefit of the UGMA and UTMA custodial accounts is that when you invest money on a child’s behalf, the income gets taxed at the child's tax rate rather than at the custodian's tax rate. It is also noteworthy that, for the 2023 tax year, unearned income over $2,500 will generally be taxed at the parent's marginal rate. The extension of FDIC insurance to a custodial account depends on how the account is utilized. FDIC insurance would extend to a custodial account if it's used as a standard checking or savings account. If the custodial account can actively invest in stocks or bonds, then FDIC insurance would not apply. In this case, Securities Investor Protection Corporation (SIPC) would be the applicable insurance to keep assets in the account safe. SIPC does not, however, protect from losses while actively investing. 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. Charles Schwab. "Charles R. Schwab." Charles Schwab. "What is a custodial account?" Vanguard. "About Vanguard." Vanguard. "Vanguard UGMA/UTMA Account." Vanguard. "Client Benefits." Vanguard. "Brokerage Services Commission & Fee Schedules." Crunchbase. "Acorns." Acorns. "Is Acorns Safe?" Ally Bank. "Online Savings Account." Vanguard. "Mutual Funds." Acorns. "Acorns Subscription." Related Terms Generational Wealth: Overview and Examples Generational wealth refers to assets passed by one generation of a family to another, such as stocks, bonds, real estate, and family businesses. more Itemized Statement: Meaning, Benefits, Example An itemized statement is a document issued by a financial institution to its customers detailing all account activity for a specific period. more Cross Selling: Definition, Pros and Cons, vs. Upselling Cross-selling is to sell related or complementary products to an existing customer. Cross-selling is one of the most effective methods of marketing. more Sudden Wealth Syndrome (SWS): Definition, Causes, and Treatment Sudden wealth syndrome is a type of distress that afflicts individuals who suddenly come into large sums of money, causing them stress, guilt, fear and confusion. more Annual Exclusion: Meaning and Special Cases An annual exclusion is the amount of money that one person may transfer to another as a gift without incurring a gift tax or affecting the unified credit. more What Is a Health Care Power of Attorney (HCPOA)? A health care power of attorney (HCPOA) is a legal document that allows an individual to empower another to make decisions about their medical care. moreBest Custodial Accounts for September 2024
Best Overall : Charles Schwab
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Best for Mutual Funds : Vanguard
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Best Robo-Advisor : Acorns
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Best Custodial Bank Account : Ally Bank
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Research Insights
Cost-effectiveness remains a significant factor, with parents assessing not only account management fees but also investment options and potential tax implications associated with the custodial account. Moreover, advanced features such as educational resources, investment guidance, and tools for long-term financial planning can enhance the value proposition of a custodial account, empowering parents to make informed decisions about their children's financial education and future. - Amrut Deshmukh, Investopedia Research Analyst The Bottom Line
Compare the Best Custodial Accounts
Company Account Type Annual Fees Minimum Opening Deposit Highlight Feature Charles SchwabBest Overall Brokerage account $0 $0 Purchase fractional shares for as little as $5 VanguardBest for Mutual Funds Brokerage account $25 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 0.09%. The industry average mutual fund expense ratio is 0.50%. AcornsBest Robo-Advisor Brokerage account Plans start at $3 per month $0 Open a kid-friendly investment account in under 3 minutes Ally BankBest Custodial Bank Account Online savings account $0 $0 APY of 4.20% Why You Should Trust Us
Guide to Choosing the Best Custodial Accounts
What Is a Custodial Account?
What's the Difference Between UTMA vs. UGMA Accounts?
How to Open a Custodial Account?
Frequently Asked Questions
How Does a Custodial Account Work?
When Can You Withdraw Money From a Custodial Account?
Do Custodial Accounts Get Taxed?
Are Custodial Accounts FDIC insured?
Is a Custodial Account a Good Idea?
How We Picked the Best Custodial Accounts
Learn More About Custodial Accounts
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