The 8 Best Custodial Accounts of 2019
Start your child's finances on the right foot
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A custodial account is a financial account held in the name of a minor, usually by a parent, legal guardian, or another relative. If you are a parent or guardian of a young person, this gives you the opportunity to save and invest for your child while retaining full control of the account until they reach adulthood. This kind of account provides you with maximum flexibility in how you choose to invest and use the funds. Custodial accounts in the United States are regulated by the Uniform Transfers to Minors Act (UTMA) and Universal Gifts to Minors Act (UGMA). You may find some custodial accounts referred to as UTMA or UGMA accounts, but those terms can be used interchangeably with "custodial account" in many scenarios.
When opening a new custodial account, you have plenty of options from investment brokerages, banks, and other financial institutions. In most cases, you will want an investment account. That gives you the ability to invest funds for the minor’s benefit, which can have much higher returns than a bank account with limited interest. So how do you decide which account is best for your family?
The first thing to consider is the fees. Brokerage firms may charge account maintenance fees in addition to trading fees or commissions. While trade fees up to $5 per trade are common, you should not open an account that charges regular fees even when you don’t have trading activity.
It’s also good to examine the account’s investment options. Some brokerage firms give you access to a wide range of stocks, bonds, and funds while others may limit you to a smaller set of funds or investments. Know what you will be able to access when you sign up and consider the minor’s long-term needs beyond the next few years.
The last thing to consider is investment support. You don’t need an MBA to manage your investments, but sometimes you want a little help beyond your own knowledge. Some brokerages offer you free personal advice and support, some manage investments for you, and others offer research and resources to learn and make decisions on your own. Choose the brokerage that meets your needs.
Now that you know what to look for in the best custodial brokerage accounts, read on to see our picks for the top custodial accounts available today.
The overall best choice for a custodial account is Charles Schwab. Schwab gives you access to a wide range of investments with no minimum opening balance, no monthly fee, and free trades of Schwab ETFs and accounts on the Schwab Select List of mutual funds.
This account has all of the benefits of the flagship Schwab One investment account, but is opened under UTMA or UTGA so you can invest and hold assets in the name of a minor child (as is the case with all UTMA/UTGA accounts).
Regular trades are $4.95 each, but with a huge list of Schwab funds to choose from with no trade fees, you likely won’t need to pay that $4.95. Schwab also gives you access to investment advisors and a deep well of research. Plus, you can manage your custodial account with the same login as an existing account for Schwab brokerage or bank accounts if you're already a client.
Interested in learning more? Check out our full review of Charles Schwab.
TD Ameritrade offers three solid options to save for college, one of which is a UGMA/UTMA custodial account. This account is available to open with no minimum balance. TD Ameritrade categorizes its custodial account as an education savings vehicle for marketing purposes, but you are not restricted to use the funds for college.
TD Ameritrade came from a merger of two of the biggest financial companies in North America, so it offers a wide range of services to complement a custodial account. Trades cost $6.95 each, which puts them in the discount brokerage category but not the lowest cost around.
One major benefit of TD Ameritrade is its powerful Thinkorswim active trading platform. If you want high-tech trading that looks like something a Wall Street trader uses, you’ll be thrilled with the advanced trading options in Thinkorswim.
Want more information? Read through our full review of TD Ameritrade.
If you're leaning towards a more conservative option to save and would rather keep the account funds in cash, consider Ally Bank. Ally offers among the best interest rates in the industry, and the Child Savings Account is a great place to put away money for college or other future needs.
Ally Bank is an online-only bank (which means no cash deposits). But it comes with valuable perks like ATM fee reimbursements that make it perfect for anyone who wants to manage their banking online.
You can add to the account with online transfers, remote check deposits from your phone, or other electronic transfer methods. Thanks to the account’s FDIC insurance, you never have to worry about losing a cent. But, because it's just a savings account, you won’t get any big return on your investment either.
Stockpile is a unique investment firm that allows you to buy fractional shares of stock starting at $5 invested. Accounts are free and all trades charge a simple 99 cent fee. Stockpile is fun to use, offers a useful mobile app, and allows anyone to gift shares of stock to an account holder through a stockpile gift card.
If you open a UTMA custodial account for your child at Stockpile, other family members may want to contribute. It’s easier at Stockpile than other brokers. They can hop on the Stockpile website and choose one of 1,000 stocks and ETFs (they don’t support every stock out there) with an e-gift card, print-at-home gift card, or mailed gift card. Once redeemed, the shares show up in your minor’s account the same way they'd show up if you had invested yourself.
Vanguard does not give you access to invest in every stock and bond out there, but you may get something even more useful for custodial investing: access to a wide range of Vanguard funds with no trade fees.
Vanguard funds are among the lowest cost of any funds in the industry. When you buy an investment, the costs don’t stop at the buy and sell commissions. Mutual funds and ETFs charge fees in the form of an expense ratio, or percentage fee based on the total value of your investments.
Vanguard's industry-leading low-fee funds are a big part of why Vanguard has more assets under management than any other broker. The only big downside is that you can’t buy stocks or mutual funds from outside from the Vanguard family.
If you just want to put the funds in an account and let someone else take care of the rest, FutureAdvisor might be your best choice. FutureAdvisor is a robo-advisor, which means you fill out a survey explaining your risk tolerance and goals and a computer matches your investments to your needs.
FutureAdvisor charges a 0.5% annual management fee based on the total value of your assets. This is automatically deducted from your account so you never have to think about it, just like you don’t have to worry about the investment portfolio.
Your FutureAdvisor account does not work alone. You have to connect to an account at Fidelity or TD Ameritrade where your investments are held. That means you’ll pay a few extra dollars for their fees on top of FutureAdvisor, but you’ll know your investments are in the right place for your goals.
Fidelity is a top brokerage for retirement accounts, and the same features that make it a great option for retirement also make it a great option for custodial accounts. It's most appealing feature: research. Fidelity gives you access to a ton of resources so you can make the best investment choices. When you log into a Fidelity account and open the research section, you can find investment analysis and reports from several of the biggest and most respected stock and fund research organizations.
Fidelity offers trades for $4.95 and its own list of popular mutual funds that trade with no fees. If you choose Fidelity, you won’t be disappointed with the results.
Etrade is the oldest online brokerage, and its custodial accounts deserve consideration if you want to invest for your child’s future. While stock and options trades cost $6.95 (not the cheapest on this list), account holders get access to 4,400 no-load and no-transaction-fee mutual funds. That means free investment trades for your long-term fund investments.
In a custodial account, the first $1,050 of annual earnings are tax-free and up to $15,000 in annual gifts can be invested under the gift tax exclusion. That is the case at Etrade and other custodial accounts that fall under the UTMA/GTMA regulations.
Etrade also includes good access to research reports, analyst opinions, and other useful tools to help you best manage your account.