A grandparent’s guide to savings accounts for grandchildren

You love your grandchildren and want nothing more than to help them succeed. One of the best ways to set them up for success is to provide a financial head start, giving them a foundation for reaching big goals like buying their first car or going to college. But with so many options, where do you start? 

In this guide, we break down why you may want to give kids a financial head start and explore a few of the best ways to do it. 

Why grandparents choose to save for their grandchildren

Depending on the family, there are countless reasons why grandparents may decide to save for their grandchildren, but here are a few reasons why they might:

• Passing on values: Helping your grandchildren learn to save can start them on the path toward having responsible money habits.

• Providing opportunities: The extra savings from a grandparent can help ease the cost of college or make future milestones more attainable.

• Leaving a legacy: Grandparents may want to start transferring their wealth to leave an impact on the next generation of their family tree. 

The benefits of starting early

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The earlier you start, the more advantages you can give your grandchildren, including:

• Compound growth: The younger the kids and the earlier you start helping them save, the more time their money has to compound. 

• Flexibility: With a head start, you may decide to utilize the benefits of multiple accounts to serve different purposes and meet other goals, both short-term and long-term.

• Confidence: As you start having money conversations with your grandkids and showing them how their savings are growing, they will build their financial literacy and grow more confident with money. 

Common types of accounts grandparents can open

Traditional savings accounts

If you’re looking to keep things simple and low-risk, traditional savings accounts are a good starting point. They’re FDIC-insured and an accessible way for grandparents to gift cash or set aside smaller amounts, particularly for short-term goals. However, traditional savings accounts typically offer lower interest rates, so they may not be as effective for long-term growth. 

High-yield savings accounts

If you like the benefits of a savings account but want to get a little more bang for your buck, high-yield savings accounts are still low-risk and just as easy to manage. To get the highest yields, you typically have to go through online banks. 

Certificates of deposit (CDs)

For a set-it-and-forget-it approach, CDs are a standard go-to. CDs allow you to set aside money for a fixed amount of time and lock in your interest rates, so you get predictable returns. CDs tend to offer higher rates than savings accounts and can be a good choice for short- or medium-term goals (e.g., one to five years). 

Savings bonds

Another low-risk option, savings bonds are typically used for longer-term savings goals. The specifics vary depending on the type of bond, but bonds usually have low liquidity – meaning it’s not easy to sell them quickly if you need access to cash, and they have low interest rates or caps on how much interest you can earn. The low liquidity may be a positive, though, if you’re looking to ensure your grandchild doesn’t use the bonds until they’re older. 

Custodial accounts (UGMA/UTMA)

Custodial accounts are designated as a UGMA or UTMA, depending on which state the child resides in. These adult-managed accounts offer a wide variety of investment choices, making it a solid option if you want flexible access to the funds with the potential for upside growth. Once the child reaches adulthood, depending on the state, they get full control of the account. 

529 college savings plans

When saving specifically for college, a 529 plan can be a great choice because it enables you to save while getting tax advantages for educational expenses.  

Using Greenlight to save

If you’re looking for a modern, flexible way to help your grandkids save, Greenlight can be an excellent option. With Greenlight’s money management app and debit card for kids, grandparents can contribute directly to their accounts through the app. Kids can create customized savings buckets to set aside money for different savings goals*, such as education, their first car, or just for fun.

Choosing the right approach

Deciding how and where to save depends on multiple factors. These are just a few to consider:

• Match goals with the timeline: Are you saving this money for something short-term or long-term? Is it for a specific purpose or just general savings?

• Decide who will manage the account: Do you want an adult to manage the money, or would you like your grandkids to have access to it?

• Blend strategies: If you have multiple goals, consider using multiple accounts, earmarked for different purposes. 

• Talk to the parents and kids: If you’re unsure, discuss the overall idea of helping with savings and see what they think makes the most sense. 

• Reassess goals: As your grandchildren grow, make sure your savings plans still match their goals and circumstances. What if things change? 

Saving for their future

Whichever route you take, helping your grandchildren save is an opportunity to connect with them, pass on your values, and help them learn more about managing their money. If you’re not sure what the best plan is yet, start with a small amount and adjust as they grow older. 

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*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, Greenlight Infinity families can earn 5% per annum, and Greenlight Family Shield families can earn 6% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.