Savings accounts for grandchildren: A complete guide

Saving for grandkids can be a thoughtful way to give them a head start as they enter their adult years. Some grandparents set up a savings account for their grandchildren when they are young, giving the money years to grow and build up interest. The child can then use the cash to achieve a major life goal, such as a college education, without having to worry about being weighed down by debt.

Other grandparents build a pot of cash to be used as a financial gift — for example, for their grandchild’s first car. But a savings account for grandkids doesn’t necessarily have to have an end goal. It can also be a useful tool to get younger grandchildren to start learning early about the value of money and giving them financial literacy skills.

The best way to save money for grandchildren will ultimately depend on what you want to achieve with the account. While you might not have a specific savings amount in mind, setting a financial goal can be helpful in narrowing down your options.

Some financial products will likely already be familiar to grandparents. A traditional savings account, for instance, can be repurposed for your grandchild’s funds. Those comfortable with investment risk may consider investment-based accounts, like 529 college savings plans for grandchildren or custodial accounts (UGMA/UTMA).

These are basic accounts commonly offered by banks and credit unions, and they are an easy way to start building a pot of savings for grandkids. You can earn a modest amount of interest while keeping your money easily accessible. Transactions can usually be made in-person at a local branch or through online banking. And since many of these accounts come with low or no fees, you get to keep more of what you save.

If you’re looking to grow your savings a little faster, certificates of deposit (CDs) may be worth considering, as they typically offer better interest rates than traditional accounts. You’d have to be willing to set your money aside and leave it untouched for the given time. When the account matures, you get the interest stated on the account.

If you have a goal of putting money away for your grandchild’s birthday next year, a short-term CD could be suitable. For savings goals farther off, long-term CDs can sometimes offer more competitive rates.

It’s worth bearing in mind that when you open a CD, your money is locked in for the term. If you take it out early, you might incur a penalty. That said, no-penalty CDs offer a middle ground, letting you take your money out early without any fees.

Please note that while savings accounts on the Raisin platform offer opportunities to earn competitive interest rates, they cannot be opened for children and use of Raisin services is reserved for adults in the United States.

With a custodial account, you can either save or invest for your grandchild’s future. The custodian, usually a parent or grandparent, is in charge of managing the account while the child is still a minor (which could be under age 18 or 21, depending on the state of residence).

Along with cash deposits, a custodial account can hold everything from stocks and bonds to annuities and real estate. Once the grandchild reaches the age of majority, they’ll take full ownership of the money and/or assets within the account.

Most custodial accounts are opened under what’s known as the UGMA or UTMA, depending on where you live. You can typically set one up through a bank or brokerage.

Similarly to custodial accounts, you can act as a custodian of a Roth IRA for kids, a retirement account for children under age 18 (or the particular minor age in your state). This may be a suitable savings account for grandchildren who are slightly older and earning their own money, maybe from a weekend job. While the money belongs to your grandchild, the adult would act as the custodian until the child reaches adulthood.

With the average tuition and fees at a public college now at $11,610 per year,¹ the cost of a degree can easily cost more than $50,000. Stashing some cash away for your grandchild’s education can help them avoid student debt.

A 529 plan is designed for educational savings. It operates as a state-sponsored savings plan and comes with tax advantages, as the money grows and compounds tax-free. A 529 plan can be used for various qualified expenses, including college tuition, K–12 tuition, trade school, or even certain apprenticeship programs.

Grandparents saving for grandchildren might also look at the Coverdell ESA (Education Savings Account), which has lower contribution limits and slightly more flexibility on how the funds can be used.

If someone has already set up a 529 plan for your grandchild, they can share the account details so you can contribute without having to set one up yourself.

U.S. Treasury savings bonds offer a fairly low-risk investment option. Because they’re supported by the government and they offer a guaranteed return, some might consider them one of the best investments for grandchildren. With Series EE bonds, for example, you buy them at half their face value, and the Treasury guarantees they’ll double in value in 20 years.

Another option is Series I bonds, which offer a fixed rate and an inflation-adjusted rate. That way, your investment is better protected against the rising cost of living.

There’s no one best savings account for grandchildren; everyone has different priorities. Taking a closer look at the features of each account can help you make the right choice for you and your grandchild.

You might ask yourself:

• How old is your grandchild? Some accounts have age stipulations, and you may need to review your chosen plan as your grandchild gets older.

• How flexible is the account? Do you want an account you can easily add funds to as needed, or are you after something you can set up, add funds to, then leave untouched for years?

• What level of savings growth are you hoping for? Are you saving for a specific event, or do you have a less tangible, longer-term goal? Having an idea of this will help you estimate how much you could aim to save.

• What kind of access do you prefer? In some cases, grandparents saving for grandchildren have less control over the account compared to a parent who sets it up for their child. Make sure the level of control works for you.

• Has the parent set up an account already? It can help to communicate with the child’s parents to see whether it might be easier to contribute to an existing account.

• When can you start saving? Generally speaking, the sooner you start, the more time your savings will have to grow. Even small monthly contributions can add up over 10, 15, or 20 years. You can find out more about the annual percentage rate (APY) and how it compounds interest.

It can also help to discuss your options with a financial advisor to find the right account for your needs.

If you deposit money into a savings account for grandchildren in their name (such as a custodial account), that amount is considered a gift under the gift tax rules. As of 2025, individuals can gift up to $19,000 per year without having to file a gift tax return. So if you stay under that limit, neither you nor your grandchild will have to pay tax.

With 529 plans, on the other hand, one of the main benefits is allowing large contributions without being immediately subject to tax.

You can also research more about the rules of gifting money to children to understand any potential implications.

Many people want to know: “Can I open a savings account for my grandchild?”. The answer is yes, with the right identity information, grandparents can set up savings accounts for grandchildren.

1. You could start by asking your bank about the children’s accounts they offer, as well as interest rates and any age limits.

2. Gather your grandchild’s details (name, birth date, address, Social Security number). You’d also need to provide the same information for yourself.

3. Open the account at the bank or online, and make the first deposit.

4. Depending on the account terms, you may be able to make regular deposits.

5. You might then choose to review the account’s progress with your grandchild, which can help them learn healthy money habits.

Most banks, credit unions, and savings plan providers will ask for your grandchild’s full name, date of birth, and Social Security number. A birth certificate isn’t usually needed if you have this information. However, requirements may vary depending on the account type, whether you’re opening the account in-person or online, and whether your grandchild is present. It can help to review the conditions of your chosen account.

With Raisin, you can access an exclusive network of banks and credit unions offering top rates on savings products — all with no fees from Raisin. Find, fund, and manage your chosen CD account from multiple institutions, all from a single login. Get more from your savings and build a brighter future for your grandchild!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

¹https://research.collegeboard.org/trends/college-pricing/highlights