Best Custodial Accounts of 2022

Financial Accounts You Can Open for Your Child

By
TJ Porter
TJ Porter
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TJ Porter has over seven years of experience writing about investing, stocks, ETFs, banking, credit, and more. He has been published on well-known personal finance sites like Bankrate, Credit Karma, MoneyCrashers, DollarSprout, and more. TJ has a bachelor's in business administration from Northeastern University.
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Updated April 01, 2022
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Ebony J. Howard
Ebony Howard
Reviewed by Ebony J. Howard
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Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
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Fact checked by Jane Meacham
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Jane is a freelance editor for The Balance with more than 30 years of experience editing and writing about personal finance and other financial and economic subjects.
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Every parent wants to set their child up for success in life. One way to do that is by giving your child a head start financially by setting up a custodial account.

Put simply, a custodial account is an investment account or other financial account that is in a minor’s name. An adult custodian manages the account, although the assets in it are the full property of the child. Once the child comes of age, they can take over control of the account. This lets you, and your family or friends, make tax-advantaged gifts to your child while they are young, without giving them control over those assets.

Custodial accounts are often set up under the Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA).

If you’re thinking about opening a custodial account for your child, there are a lot of things to consider. You’ll want to look at details such as fees, account minimums, and investment options. Here are some of the brokers we think are the best choices for opening a custodial account.

Best Custodial Accounts of 2022

Best Overall : Charles Schwab

Charles Schwab

Charles Schwab
  • Minimum deposit: None
  • Fees: No account maintenance fees; no commissions for online stock and exchange-traded fund (ETF) trades
  • Account types: UGMA/UTMA, 529 plans
Open Account

Why We Chose It

Schwab has the best overall custodial accounts in the business for a few reasons.

One of the top reasons to work with Schwab when opening a custodial account is that the brokerage firm makes it very simple and inexpensive. There are no minimum deposit requirements and fees to worry about. You can get started with a small financial gift, and the broker doesn’t charge you a commission later when you buy stocks, mutual funds, and ETFs.

Another reason to work with Schwab is that the company operates many world-class mutual funds and ETFs. If you’re looking to build a passive, diversified portfolio, you can use Schwab as both your broker and your fund manager. You can also invest in other securities, including derivatives, although those may require paying a fee.

Schwab has a powerful mobile app that makes it easy to access and manage your account, so you can manage any custodial accounts on the go.

Pros

  • No minimum account balance

  • No fees for stocks, mutual funds, or ETFs

  • Offers variety of account types so you can do all your investing in one place

  • Invest in fractional shares of S&P 500 companies

Cons

  • High fees for some types of trades, such as options

Best for College Savings : TD Ameritrade

TD Ameritrade

TD Ameritrade
  • Minimum deposit: None
  • Fees: None for stock, ETF, and mutual fund transactions
  • Account types: UGMA/UTMA, 529 plans, Coverdell Education Savings Account
Open Account

Why We Chose It

TD Ameritrade is another strong choice for custodial accounts, especially if you’re looking to help your child save for college. On top of a UGMA/UTMA account, you can open a 529 plan or a Coverdell account, both of which are tax-advantaged education accounts.

Charles Schwab acquired TD Ameritrade in 2019 and will merge TD Ameritrade accounts into its existing ones; Schwab will keep the thinkorswim platform.

Like most major brokers these days, TD Ameritrade charges no commission for stock, ETF, and mutual fund transactions. It also doesn’t have a minimum account balance, making it easy to open an account and start saving for your child.

The firm has a long history of using technology to make customers’ lives easier and making investing less expensive. In 1995, it acquired the company that claims to have executed the first online stock trade, so it’s no surprise that it has a good mobile app that makes managing your account easy.

Pros

  • Multiple account types available

  • No commissions charged for basic trades

  • No minimum account balance

Cons

Best Robo-Advisor and Best for Research Resources : Merrill Edge

Merrill

Merrill
  • Minimum deposit: None ($1,000 for robo-advisory services)
  • Fees: None for stock, ETF, options, and mutual fund transactions
  • Account types: UGMA/UTMA
Open Account

Why We Chose It

Merrill Edge is one of our top picks for custodial accounts for a few reasons.

Near the top of the list is its robo-advisory service, Merrill Edge Automated Investing. If you want a set-it-and-forget-it solution for your custodial accounts, this is one of the best out there. The minimum investment is low at $1,000 and the price is just 0.45% of your invested assets. In exchange, the software will automatically invest and manage your portfolio based on your goals for the account.

On the other end of the spectrum, Merrill Edge is one of the best choices for advanced investors. The company has access to significant research tools and investing data from popular sources such as S&P Global and Morningstar. If you want to take a more active role in managing your custodial accounts, these tools can make a big difference.

Merrill also offers a mobile app for easy portable account management.

Pros

  • Inexpensive robo-advisory services

  • Powerful research tools

  • No fees or minimums

Cons

  • No fractional share investing

  • Limited account types

Best for Educational Content : Fidelity Investments

Fidelity Investments
  • Minimum Deposit: None
  • Fees: None for stock, ETF, and mutual fund transactions
  • Account Types: UGMA/UTMA, 529 plans, Youth Account
Open Account

Why We Chose It

Helping your child by giving them a head start financially is one thing, but teaching them how to interact with money and make the most of what you’ve saved is just as important. Fidelity stands apart from the competition when it comes to educational resources you and your child can use to learn about money and investing.

One unique offering at this brokerage is the Fidelity Youth Account. It’s designed for teens and comes with a debit card that links to the child’s checking account, which has no minimum balances, account fees, or ATM fees. Your child can use the account and its app to learn about managing money—and it even gives options for investing their extra savings for the future. This gives your child hands-on experience with money management and investing.

Fidelity is one of the largest financial institutions out there and has plenty of ETF and mutual fund offerings, so you can use the company as both your broker and fund manager.

Pros

  • Unique Youth Account that gives your child hands-on experience

  • No commissions for basic trades

  • No minimum account balance

Cons

  • Limited investment data and research

  • Can only invest in certain securities

Final Verdict

If you decide to set up a custodial account for your kid, comparison shop among these brokerage options and others by reviewing fees, account minimums, and investment menus to select the best choice for your situation.

Compare the Best Custodial Accounts

Company Account Minimum Fees Investments
Charles Schwab
Best Overall		 None None Stocks, mutual funds, ETFs
TD Ameritrade
Best for College Savings		 None None Stocks, mutual funds, ETF
Merrill Edge
Best Robo-Advisor and Best for Research Resources		 None ($1,000 for robo-advisory services) None Stocks, mutual funds, options, ETFs
Fidelity
Best for Educational Content		 None None Stocks, mutual funds, ETFs

How Does a Custodial Account Work?

A custodial account works just like any other brokerage account except that the assets are the property of a minor and an adult manages the account. The custodian can invest the funds in the account for the benefit of the child.

A custodial account can be a good choice for people who want to make financial gifts to their minor children immediately, without giving them control over that money. The timing of gifts can be important for gift-tax reasons, and custodial accounts give people more freedom over the timing of their gift.

When choosing which custodial account to open, consider things such as account fees, minimum balance, and the investment options available.

Do Custodial Accounts Get Taxed?

Yes, custodial accounts are taxed. For beneficiaries under 19 or under 24 years of age and in school full-time, the first $1,050 earned in the account is tax-free. The next $1,050 is taxed at the child’s tax rate, and any remaining amount is taxed at the account custodian’s federal tax rate.

When Can You Withdraw Money From a Custodial Account?

Money placed in a custodial account is an irrevocable gift. That means it immediately becomes the property of the child who is the beneficiary of the account. The gift givers or custodians can’t simply take money out of the account to use it.

Once the beneficiary reaches the age of majority (usually 18, although it can vary by state), they gain full control over the account and can make withdrawals whenever they wish and for whatever purpose they’d like.

A custodian may make withdrawals from a UTMA and spend those funds for the benefit of the child, but they must be able to show that the spending was to the beneficiary’s benefit. They have a fiduciary duty to manage the account solely for the interest of the beneficiary.

How To Choose the Best Custodial Account

The best custodial account is the one that fits you and your child’s needs. Fidelity can be a great choice if you want a good account for teaching your child about investing, while Merrill is a solid pick if you’re looking for a hands-off way to invest.

Look for accounts that keep fees low, because fees can have a major impact on the performance of your investment portfolio, especially over the long term. Also consider how easy it will be to manage the account. You may want to use your current brokerage firm for a new custodial account simply for the convenience of keeping everything in one place.

Methodology

We are dedicated to providing readers with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience, and customer service. A rating scale was established based on these criteria, collecting thousands of data points that were weighed into a scoring system.

Article Sources

  1. FINRA. “Saving For College: UGMA and UTMA Custodial Accounts.”

  2. Charles Schwab. “Schwab One Custodial Account.”

  3. TD Ameritrade. “Education Savings Accounts.”

  4. TD Ameritrade. “Investment Account Types.”

  5. Charles Schwab. "Charles Schwab Announces Plan to Adopt thinkorswim Trading Platforms as Part of TD Ameritrade Integration."

  6. TD Ameritrade. “Pricing.”

  7. TD Ameritrade. “About Us.”

  8. Merrill. “Merrill Guided Investing.”

  9. Merrill. “Research for Stocks."

  10. Fidelity. “Custodial Account.”

  11. Fidelity. “The App and Debit Card That Help Teens Learn About Money.”

  12. Fidelity. “Must-Know Facts About UGMA/UTMA Accounts.”

  13. Social Security Administration. “SI 01120.205 Uniform Transfers to Minors Act.”