Best Savings Account For Grandchild

Best Savings Account For Grandchild

Grandparents with sufficient savings after decades of work might be wondering where the best place to set up a savings account for their grandchildren is. Underage children have a lot of major expenses ahead of them, chief of these expenses being education. Grandparents can help ease the financial burden by opening a savings account for their grandchildren years before they reach college.

However, there are several ways of doing this and grandparents might find themselves stuck with a myriad of choices, not knowing which one is best. 

Luckily, understanding each of the savings account types is far from difficult and can help demystify the various accounts offered by banks to prospective clients who wish to save up for their grandchildren. 

There are a few types of savings accounts grandparents can open for their grandchildren:

  • 529 college savings plans
  • Junior Self Invested Personal Pensions (Junior SIPPs)
  • Children’s savings accounts
  • Bare trusts 

All of the above are viable ways to start saving up for your grandchildren and ensure that they are sufficiently funded as they enter adulthood. 

"I always encourage people to pay themselves first, so I really advocate setting up direct deposit for your paycheck and establishing an automatic transfer so that part of each paycheck goes straight into your savings account." - Alexa Von Tobel

If you have grandchildren and would like to open a savings account for them, then this investfox guide is for you. 

5 Factors To Consider When Choosing A Savings Account For Your Grandchild

Before delving deeper into the types of savings accounts adults can open for minors, it is important to understand the factors that make one savings account better than the other, such as:

  • Interest rates - the interest rate is an important factor to consider as it will determine how much interest the account will earn over time. Look for savings accounts with competitive interest rates to maximize your grandchild's savings
  • Fees - some savings accounts may have fees associated with them, such as monthly maintenance fees, transaction fees, or early withdrawal fees. Look for accounts that have no or low fees to help keep more money in your grandchild's account
  • Minimum deposit requirements - some savings accounts may require a minimum deposit to open the account, while others may not. Consider the amount of money you have available to deposit and look for accounts that have a minimum deposit requirement that fits your budget
  • Accessibility - consider how easy it is to access the account and whether or not the account provides ATM access or online banking services. This can make it easier for your grandchild to manage and access their savings
  • Account features - some savings accounts may offer features such as automatic savings plans or rewards programs. Consider whether these features are important to you and your grandchild and whether they may help to encourage regular saving habits

Types Of Savings Accounts For Grandchildren

When choosing a savings account, it is crucial to have a clear objective that the account must be able to meet over a given time period. For grandchildren, this could be to accumulate sufficient funds to cover tuition fees for university, or it could simply act as regular savings the child will be able to gain access to once they reach a certain age. Let’s look at some possible savings account types that can help you achieve your savings goals. 

529 College Savings Plan

A 529 college savings plan is a tax-advantaged savings plan designed to help families save for future education expenses. 529 plans can be a great way to save up for tuition expenses, as it comes with some convenient features, such as:

  • Contributions made to a 529 plan grow tax-free and withdrawals made for qualified educational expenses are also tax-free
  • Funds in a 529 plan can be used to pay for qualified education expenses, including tuition, fees, books, and room and board, and can include expenses associated with both graduate and undergraduate studies
  • 529 plans typically offer a variety of investment options, such as age-based portfolios or individual mutual funds so that families can choose the plan that best suits their risk tolerance 
  • 529 plans have no annual contribution limits, with some plans allowing contributions over $300,000 per beneficiary
  • The beneficiary can transfer unused funds to another family member without a penalty

Junior Self Invested Personal Pension (Junior SIPP)

For people residing in the United Kingdom, the best course of action to save up for your grandchild might be a Junior Self Invested Personal Pension, or a Junior SIPP.

The Junior SIPP program provides a tax-efficient way for guardians to save up for their underage beneficiaries primarily for educational purposes. Here’s how a Junior SIPP works:

  • A parent or legal guardian can open a Junior SIPP on behalf of a child. The child must be residing in the UK and be under 18 years of age. The parent/legal guardian assumes the role of custodian and manages the account until the beneficiary turns 18
  • The annual contribution limit for a Junior SIPP is GBP 3,600 and some tax advantages apply
  • The Junior SIPP allows a wide range of investment options, including shares, bonds, funds, and other investments. The custodian can also choose to hire a professional account manager
  • Similarly to other types of pensions, the Junior SIPP also benefits from tax relief on contributions. When the beneficiary reaches retirement age, they can take up to 25% of the account value as a tax-free lump sum and use the rest to provide a regular income in retirement
  • When the beneficiary reaches the age of 18, the ownership of the account is automatically transferred to them and they can choose to manage the account individually or hire a financial professional to do so on their behalf

Children’s Savings Account (CSA)

A traditional Children’s Savings Account, or CSA, is a great way for grandparents to save up for their grandchildren’s future expenses. The general process of opening a CSA can be broken down into the following steps:

  • The parent/guardian of the child goes to a bank and opens a CSA in the child’s name. The account may require an initial deposit, and there may be minimum balance requirements and monthly fees to maintain the account
  • Once the account is open, the parent or guardian can make deposits into the account regularly. Parents can set up automatic transfers into the CSA
  • The account starts earning interest, which could be fixed or variable
  • Withdrawals from a CSA are typically limited. The parent or guardian may be able to withdraw money to pay for expenses related to the child's education or medical needs, but other withdrawals may be subject to fees or penalties
  • Once the child reaches the age of 18, the ownership of the account is transferred to them and they can decide whether to keep the account or withdraw the funds and close it


UGMA and UTMA are two types of custodial accounts under U.S. law that allow adults to gift money or other assets to a minor. 

UGMA stands for the Uniform Gift to Minors Act, while UTMA stands for the Uniform Transfer to Minors Act. 

Both acts work similarly and involve an adult (parent, grandparent, legal guardian) opening an account for a minor until they reach the age of majority (18, or 21 in some states). The account serves to allow the custodian to gift assets and manage the account on behalf of the beneficiary until they reach the age of majority.

Gifts made using a UGMA or UTMA are irrevocable, meaning that the beneficiary cannot refuse the gift. The beneficiary has the freedom to use the funds at their discretion. However, it must be noted that minors who are beneficiaries of UGMA/UTMA accounts, may be eligible for less financial aid when applying for college. 

Bare Trusts 

Bare trusts are another convenient way for UK residents to open and fund accounts for their grandchildren. The custodian opens a trust account for the beneficiary and the trustee holds the assets on behalf of the beneficiary. 

After an adult opens a bare trust, they can transfer assets to the trust account and the trustee manages them until the beneficiary turns 18. Assets may include anything from cash to property and other assets, such as stocks and bonds. 

The income and capital gains generated by the trust are subject to tax benefits. Once the beneficiary reaches the age of majority, they become the legal owner of the assets and can use them at their discretion.

Pros and Cons Of Opening A Savings Account For Your Grandchild

Before choosing a specific type of savings account for your grandchild, it is important to understand the advantages and drawbacks of opening one in the first place. 


  • Building saving habits - opening a savings account for your grandchild can teach them about the importance of managing their funds and building useful saving habits
  • Helping ensure a secure future - a saving account can go a long way in helping your grandchild meet adulthood with viable financial backing
  • Tax benefits - some savings accounts, such as 529 college savings plans, offer tax benefits that can help reduce the amount of taxes you or your grandchild may owe


  • Limited growth - savings accounts typically offer low rates, which means that the savings in question are not likely to grow substantially over the years
  • Inflation risk - inflation can erode the value of the money saved in the account over time, especially if the interest rate on the account does not keep pace with inflation
  • Limited financial aid - some savings accounts that are geared towards tuition expenses may disqualify the beneficiary from a bulk of the financial aid they would otherwise be eligible for when enrolling in college

Key Takeaways From Best Savings Account For Grandchild

  • Opening a savings account is a great way for grandparents to give their grandchildren some much-needed financial stability in adulthood
  • There are several ways grandparents can open a savings account for their grandchildren, such as a 529 college savings plan, a Junior SIPP, UGMA/UTMA accounts, or trusts
  • Each of these accounts offers various tax benefits
  • Inflation is an important risk to consider when choosing a savings account, as they typically have low-interest rates

FAQs On Best Savings Account For Grandchild

Should you open a savings account for your grandchild?

Opening a savings account for your grandchild could be a great way to save up for their future expenses, such as college tuition fees and general expenses. There are a number of different account types available to grow savings in a tax-deferred account. 

How does a 529 college savings plan work?

A 529 College Savings Plan is a tax-advantaged savings plan that allows custodians to accumulate savings on behalf of a minor beneficiary, who can use the account to fund their education once they have reached the age of majority. 

Does opening a savings account for my grandchild have tax benefits?

Yes. Most savings accounts for minors come with tax benefits and funds grow tax-free. However, these savings accounts also offer low-interest rates and inflation could be a major risk.