How to gift a savings account through a UGMA or UTMA account

A custodial trust can keep your gift safe until your beneficiary is of legal age.

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It might not get quite the same reaction as a new video game console. But you can gift financial security to your little one with a savings account set up for access when they’re older. Another five PlayStations down the line, and they’ll be happy you did.

What is a gift savings account?

A gift savings account is a custodial account designed to help you accrue savings for a minor. The account is managed by a custodian — a parent, other relatives or a family friend — who monitors deposits and the balance as it grows. It’s protected until the child reaches 18 years old or your state’s age of majority. At that time, ownership is transferred to the beneficiary, who can then begin withdrawing from it.

These types of accounts fall under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). Benefits differ slightly across the two accounts. But, generally, if you open one of these accounts for a child in your life, you can make it a one-time gift or add to it on birthdays, holidays and other special milestones as they grow.

Family members most often use these accounts as college funds. But the account beneficiary can use the money toward education, starting a new business, a down payment on a house or about any other expense.


The main difference between UGMA or UTMA lies in the types of assets you can add to the account. UTMA allows real estate among the types of assets you can transfer, while UGMA limits gifts to bank deposits, mutual funds and other securities.

Whether you choose a UGMA or UTMA account typically depends on the state you live in. Except for Vermont and South Carolina, most states now offer UTMA accounts exclusively.

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What are other helpful financial gifts for children?

For financial gifts that aren’t a basic savings account, choose from:

  • A piggy bank. Start younger kids on a solid financial path with a simple piggy bank. By storing their spare change for a rainy-day purchase, you’re more clearly teaching them the cost of the items they desire. And you’re helping them see the power of saving even a few cents a day.
  • A certificate of deposit. If you give a CD as a gift, the child can’t access the money until it matures. You can choose a term that becomes available on a special birthday, like a Sweet 16 or when they start college.
  • A savings bond. Not just for grandparents, a savings bond is a long-term investment that can contribute toward college or a major purchase later in life.
  • A 529 college savings plan. This higher-interest investment product is designed for long-term savings that grow along with your future graduate. Set up a 529 plan through a matching service like CollegeBacker or locally through a plan offered by your state.

What do I need to open a custodial account?

Requirements vary by bank, so it’s best to contact your financial institution to find out what you’ll need. For most accounts, you’ll have to provide:

  • Your personal information. Including your name, birth date, contact information and Social Security number.
  • The child’s personal information. Including their name, birth date, contact information and Social Security number.
  • ID for yourself and the child. This can include your driver’s license or passport, proof of address and the child’s birth certificate or Social Security card.

Is Christmas the best time to give these gifts?

Savings accounts and other financial gifts for children are for any occasion, including Christmas. A folder of printed numbers may not seem substitute for, say, the latest video game. But savings is a gift that keeps on giving.
Read up on how compare the best accounts to save up for Christmas

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Bottom line

A custodial trust account is a safe place to safely store and grow monetary gifts that come along with birthdays, graduations and other special occasions. You establish the account’s beneficiary, who learns more about money as the account balance grows. When they reach 18 or your state’s age of majority, they can then withdraw what they need for college and more.

Frequently asked questions

Picture: Shutterstock

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