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How to Set Up Your Kids with a Brokerage Account

Investing is for kids, too, and it's never too early to start. Here's how to open a custodial investment account for your kids.
Oct. 30, 2018
Brokers, Investing
For Kids' Allowance, No Cash Required
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Online brokerage accounts aren’t just for adults: If you want to teach your kids some valuable lessons about investing, opening a custodial brokerage account can be a great start.

Here are some things to consider about investing for kids, including how to set up your child’s first brokerage account.

Investing for kids

Many parents don’t know that they can help their kids invest, but under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act, you can open up custodial brokerage accounts for your kids.

Within a custodial account, kids can invest in anything from stocks to exchange-traded funds. Although the account will initially be in your name when you open it, your child will be able to take full control of it once he or she reaches age 18 or 21, depending on state laws.

Choose the right broker

To find the brokerage account that’s right for your child, look for an online broker that charges no account fees and has no minimum initial deposit. This gives your kids the chance to experiment with investing a small amount of money.

Look for an online broker with no account fees or investment minimum.

Consider, too, the costs associated with the investments your child plans to choose. For example, for kids who want to practice trading stocks, you should ensure the broker offers low trade commissions. If your kids just want their money to grow in a hands-off way, look for brokers with a large selection of low-cost index funds.

» Need help? Read more on how to choose a brokerage account

If you’re looking for a custodial brokerage account to teach your kids about investing, know that many brokers offer educational content, including online investing tutorials.

Note: If your child has his own earned income — and it is reported to the IRS — he can contribute to a Roth IRA, which has unique tax advantages. You will open a custodial Roth IRA instead of a custodial taxable brokerage account. Learn more about the benefits of investing for kids in a Roth IRA.

Get the best broker recommendation for you by selecting your preferences

Investment TypeStep 1 of 5
What do you want to invest in?
What do you want to invest in?

Investors who trade individual stocks and advanced securities like options are looking for exposure to specific companies or trading strategies.

Mutual funds and ETFs are typically best suited to investing for long-term goals that are at least 5 years away, like retirement, a far-off home purchase or college.

Beginners and long term investors often look to get exposure to whole markets and don't have a preference on which type of securities to trade.

Back

Broker

Highlights

Commissions

Account Minimum

Current Offers

Start Investing

Ally Invest

Ally Invest

Show Details

Impressive platform and research depth; low commissions

Commissions

$4.95

per trade

Current Offers

Up to $3,500

in cash bonus with a qualifying deposit

on Ally Invest's secure website

Show Details

Etrade

Etrade

Show Details

Large selection; reasonable commissions and fees

Commissions

$6.95

per trade

Current Offers

60

days of commission-free trades with a qualifying deposit

on Etrade's secure website

Show Details

TD Ameritrade

TD Ameritrade

Show Details

Top research; two powerful trade platforms; educational content

Commissions

$6.95

per trade

Current Offers

500

commission-free trades + up to $600 with qualifying deposit

on TD Ameritrade's secure website

Show Details

Open the account

You can open a custodial account for your child in under 15 minutes or so; at most brokers, the entire process is completed online.

To speed things up, make sure you have the necessary information ready. The broker will likely ask for both your and your child’s Social Security number, as well as dates of birth and contact information. You’ll probably have to supply your employment information, and you should be ready to link another bank or brokerage account so you can transfer money to fund the new account.

Find ways to get the kids involved

Once the custodial account is open and funded, the real fun begins: Investing the money.

To get your kids excited about investing, encourage them to find a publicly held company they like – maybe a household brand they’re familiar with – and help them purchase a few shares. Make a habit of checking their earnings and losses every few days and comparing the small fluctuations to larger long-term changes. This will spark discussion and inspire kids to become more informed investors in the future.

» Learn more: How to invest in stocks

For long-term growth, we’d recommend keeping those individual stocks to a small percentage of your child’s overall investment. The rest can be invested in low-cost index funds or ETFs, which bring much-needed diversification to the portfolio.

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