A custodial account is a well-liked approach for folks and guardians to take a position for his or her youngsters’s future. Accounts are simple to arrange and handle, and the grownup custodian can select from a variety of funding choices.
What’s a custodial account?
A custodial account is an funding account for kids and youths provided by brokers. Adults, normally mother and father, make a contribution to the account on behalf of the kid till the kid reaches the age of maturity as set by state legislation.
The time period custodial account sometimes refers to uniform switch to minors accounts (UTMA) and uniform reward to minors accounts (UGMA). Every state manages its personal UTMA/UGMA program.
The grownup who opens the account, often known as the custodian, has broad discretion over how the account is invested and managed. The custodian should purchase and promote securities, reinvest dividends and make withdrawals for the minor’s profit. As soon as the kid reaches the age of maturity, she or he good points management of the account and its belongings.
Finest custodial funding accounts of 2025
Brokers who made our checklist present entry to a various vary of funding belongings, low charges and account minimums, easy-to-use interfaces and academic sources that can assist you develop your investing data.
To find out the very best custodial accounts, we thought-about components corresponding to minimal deposit necessities, upkeep charges and commissions for on-line inventory and ETF trades, amongst different components.
Constancy
Constancy, which earned prime marks in Bankrate’s complete assessment of brokers, provides a standout custodial account. A full-service dealer recognized for its distinctive customer support, intensive analysis sources and wide selection of funding choices, Constancy provides UTMA/UGMA custodial accounts on par with its different stellar companies.
Constancy’s custodial account offers entry to shares, bonds, mutual funds, ETFs, choices, CDs and fractional shares. With no minimal opening deposit or recurring upkeep charges, it’s a low-barrier entry level for beginning a toddler’s funding journey.
Constancy provides different funding account choices as effectively, together with a Roth IRA for teenagers and a Youth Account for teenagers age 13-17. The latter provides a teen full management over their investments earlier than they flip 18 with no charges or minimal stability necessities.
Charles Schwab
Charles Schwab, a pioneer within the low cost brokerage business, has constructed a repute for top-notch customer support, a variety of funding choices and minimal charges.
The Schwab One Custodial Account provides the identical key options as the corporate’s flagship Schwab One Brokerage Account: Zero commissions for getting and promoting shares and ETFs, no minimal opening deposit and no upkeep charges. Account holders have entry to first-class customer support, a whole bunch of nationwide workplace places and quite a lot of funding instruments.
Fractional shares of S&P 500 firms beginning at $5 is one other nice characteristic, making Schwab a wonderful selection for an reasonably priced custodial account.
Schwab Clever Portfolios, the corporate’s robo-advisor companies that create and handle a diversified portfolio, helps custodial accounts. Nevertheless, the minimal stability is $5,000 to open an Clever Portfolio account, so should you’re beginning with much less, the Schwab One Custodial Account is the way in which to go.
Merrill Edge
Merrill Edge’s custodial account provides a fee-free and accessible strategy to begin saving for a kid’s future.
With no minimal account necessities, $0 commissions for inventory and ETF trades and $0.65 choices contracts, Merrill Edge is a horny choice, particularly for Financial institution of America clients who can profit from its intensive community of bodily places. Whereas fractional share investing isn’t accessible for inventory purchases, it provides dividend reinvestment.
E-Commerce
E-Commerce’s custodial account provides commission-free buying and selling for shares and ETFs, with a $0.50 to $0.65 contract payment for choices.
To automate the method, you’ll be able to open an account utilizing the E-Commerce Core Portfolios robo-advisor service, which creates and manages the portfolio for you for a low annual payment of 0.30 p.c of belongings beneath administration and a $500 minimal to get began. The custodial account additionally comes with a free debit card, checking and invoice pay. Like all custodial accounts, you can also make withdrawals for any function with out penalties as long as it advantages the minor beneficiary.
E-Commerce additionally provides a Coverdell training financial savings account and an IRA for minors.
Vanguard
Vanguard, well-known for its low-cost funding choices, is a wonderful selection for an equally low-cost custodial account. The dealer boasts no enrollment, switch or advisor charges for its self-directed custodial accounts.
Account holders can spend money on Vanguard’s total fund lineup, together with index funds, actively managed funds and ETFs fee-free with no commissions. Past Vanguard funds, you’ll be able to spend money on particular person shares and bonds, though fractional shares are usually not accessible.
Acorns
Acorns, an funding app designed for simplicity and accessibility, provides a complete monetary platform that features a custodial account, often known as Acorns Early.
Out there beneath the Acorns Gold service tier ($12 per 30 days), Acorns Early is simple to arrange and permits for a number of youngsters’s accounts with out extra charges. It takes simply $5 to open an account. You can too arrange recurring “round-up” deposit contributions by linking a checking account. The fintech app additionally provides a 1 p.c match on as much as $7,000 per 12 months in deposits to a toddler’s custodial account.
Whereas it’s good that Acorns mechanically locations you right into a diversified portfolio of ETFs for the account, there are different brokers on this checklist that present the identical automated portfolio administration service and not using a month-to-month payment. Nevertheless, Acorns maintains the bottom minimal funding for an automatic custodial account.
How does a custodial account work?
Custodial accounts perform like common brokerage accounts, permitting custodians to purchase and promote shares, bonds, funds and different investments. Anybody can contribute to a custodian account.
Custodial accounts are sometimes managed by mother and father or guardians, who contribute to the account and make funding selections.
There aren’t any earnings or contribution limits for these accounts. Nevertheless, contributions above $19,000 per 12 months in 2025 ($38,000 for a married couple submitting collectively) can incur federal reward tax.
In contrast to school financial savings plans, there aren’t any penalties if belongings within the account aren’t used to pay for training.
Custodians have full management over the account till the beneficiary reaches the age of majority, which is at the very least age 18 however is usually age 21, relying on the state. At that time, the custodian is required to switch belongings to the beneficiary.
The account and its belongings are irrevocable and legally belong to the minor. This implies the minor is chargeable for paying taxes on any funding earnings earned. Contributions aren’t tax-deductible for the custodian.
In the event you’re trying to make investments for a kid’s future, it’s additionally price exploring the very best 529 plans.
Backside line
With no contribution limits, custodial accounts provide flexibility and comfort when transferring cash to a minor. Whereas they could be a precious instrument, take into account various choices like 529 plans if school financial savings is your main purpose. A 529 plan typically offers tax advantages and will have much less impression in your little one’s eligibility for faculty monetary support.
Editorial Disclaimer: All buyers are suggested to conduct their very own impartial analysis into funding methods earlier than investing choice. As well as, buyers are suggested that previous funding product efficiency isn’t any assure of future value appreciation.
— Bankrate’s Dayana Yochim contributed to an replace of this text.
