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A Guide to Savings Accounts for Grandchildren

Written by Banks Editorial Team

Updated September 18, 2023​

4 min. read​

As a grandparent, it can be rewarding knowing you are helping your grandchild with their financial future. With the many options available, you may not know where to start. Savings accounts for grandchildren are an excellent tool to help them prepare. This guide will walk you through your options to make the correct choice for your goals.

Savings Account For Grandchildren

Not all savings accounts have the same features and benefits; therefore, it’s important to review each type before committing to a specific financial arrangement. First and foremost, you’ll want to consider the following points before opening a savings account for your grandchildren. 

  1. Who owns the funds: The structuring of savings plans can vary, and the owner of the funds is not necessarily the person that opened the account. Your preference is important as accounts can change the way ownership works. Does having control and ownership over the funds you are contributing have high importance? Or, are you comfortable knowing that your grandchild owns the funds? Ownership is something to consider when reviewing your options.  
  2. Access to funds: As you become familiar with the different savings options, you will learn that not all accounts allow instant access to the funds. Some have age restrictions, while others have rules on what the funds can be used for. The account type and ownership structure will dictate access to the money. You may have intended the funds for college; however, your grandchild may have another purpose in mind.  

Saving Up For Grandchildren

Now that you understand the importance of fund ownership and access, it’s time to learn what investment options you have so that you can decide upon the best savings account for your grandchildren. It’s important to consider what you hope to accomplish with your savings; is it college, a down payment on their first home, to help them live comfortably, or perhaps to learn the importance of savings from a young age to aid them in their lives later on? 

Learn the important details of each plan by reviewing the options listed below.

529 Saving Plan

If you have decided that your primary savings goal is for education, then a 529 plan is an attractive choice. Anyone can open and contribute to this investment plan, which can help increase the savings potential. This type of account is dedicated to saving for education, such as tuition and books. With this plan, your contributions grow tax-deferred until withdrawn, and if used for educational purposes, the withdrawals are also tax-free. 529 plans are state-sponsored and, therefore, can differ depending on where you live. 

Some additional points to consider are:

  • Earning interest is not guaranteed. 
  • The beneficiary must use all funds before the age of 30 and within ten years of starting college. 
  • Withdrawals not used for educational purposes are subject to penalties and taxation. 
  • It may have annual fees and contribution limits.
  • Possible negative impact upon financial aid eligibility depends on the timing of distributions and who has ownership of the funds. 

Children’s Savings Account (CSA)

A traditional children’s savings account is the least complicated option and can also help your grandchild learn the importance of saving money. These can be found at your local bank or credit union and may have higher interest rates than standard savings. It is opened in the name of the child, and anyone can make deposits. Look for savings accounts for children that don’t require high minimum balances or charge fees associated with low balances. It’s better to start early in life, as that gives you plenty of time to contribute and for the money to earn interest. Financial institutions may differ on their stance on who can open the account; some require a parent or legal guardian, while others may allow a grandparent to establish it. Just like a traditional savings account, withdrawals can be made at any time and for any purpose. 

Junior Self Invested Personal Pensions (Junior SIPPs)

This pension plan offers an encouraging tax benefit; the government provides 20% tax relief on your contributions within the annual limits. If you want to provide financial assistance to your grandchildren well into their prime, this will allow you to do so as the money is locked, and it continues to earn tax-free until they turn 55 years of age. These pension plans don’t have a minimum age requirement to open. That allows even more time for the savings to add up. While a parent or legal guardian must open and manage this account, anyone can contribute to it. As this is an investment plan, service fees apply and vary depending on the provider you choose.


These are custodial accounts that anyone can contribute to. The titles are acronyms for Uniform Gifts to Minors Act (UTMA) and Uniform Transfer to Minors Act (UTMA). The nice thing about these accounts is that until your grandchild reaches the age for access that your state mandates, you, as the grandparent, can manage the funds and act as the custodian. Knowing you have control over the money for a considerable amount of time may make you feel more at ease. 

Contributions are exempt from gift taxes as long as you don’t exceed your state’s maximum. The funds do not need to be used strictly for educational purposes. Once your grandchild reaches adult age, they gain control over the finances and use it for any purpose. Any earnings on this investment account are taxable; however, it is done at the child’s tax rate. The account is an asset of your grandchild, so it could impact their eligibility for financial aid.

Bare Trusts (Simple/Absolute Trust)

If you have assets such as life insurance or investments that you may want to leave to your grandchild when you pass, the trust will enable you to do so. This is considered a simple trust and entitles your grandchild to complete ownership of the assets and earnings of the trust. Once they turn 18 years of age, the beneficiary has full access to the assets. 

When you establish this trust account, you name the beneficiary (your grandchild) and assign a trustee (the person who will manage the funds), either yourself or someone else. If you name yourself, it allows you to control the funds until the child is no longer a minor. 

Another plus of this option is that because the beneficiary is the grandchild, the included assets are taxed based on the child, not the adult that opened the trust. Once the trust is established, beneficiaries cannot be changed. There are potential tax savings on assets and contributions depending on the value as well as exemptions.

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