One common misconception about PayPal custodial accounts is that it is an easy way to have a custodial account and that by setting up a PayPal account, you’re essentially killing two birds with one stone.
However, the reality is different.
How it works
PayPal use the money you have in your account and setup a custodial account (through Wells Fargo) on your behalf. In the unlikely case of PayPal’s insolvency (bankruptcy), up to $250,000 of your money is protected under FDIC insurance coverage. While your money is in this custodial account, PayPal earns any interest accrued.
Essentially, you don’t have a custodial account with PayPal but in the likely event of their bankruptcy, your money is safe as a result.
In reality, custodial accounts - what Loved offers - are like typical brokerage and savings accounts but for minors. The adult controls the account on behalf of the minor until they themselves reach the age of majority. They offer tax benefits and the flexibility to use funds for both educational and non-educational purposes (unlike the 529 savings plan that can only be used for education).
With custodial accounts, there is no limit to how much can be contributed. A donor can gift up to $15,000 without incurring any gift-tax while married couples who file jointly can gift up $30,000 without incurring the tax. Commissions and fees vary depending on the brokerage or bank you choose.
If you want to know more about custodial accounts, check out This article