Best Ways to Save Money for Your Grandchildren

Saving for your grandchildren can help them with costs they’ll face when they grow up. This could be for college, their first house, or just extra cash if jobs are hard to find.

Also, money isn’t spread out like it used to be. Younger people today have less money compared to older generations. According to a report by the Federal Reserve Bank of St. Louis,

today’s young adults have 72 cents for every $1 that baby boomers had when they were young, 

Given this, it’s important to help out your grandchildren’s financial future. Here’s advice on saving for them, where to put the money, and how to make sure you also have enough for your retirement.

Where Should You Keep Savings for Your Grandchildren?

Where Should You Keep Savings for Your Grandchildren?

The first thing is to pick the right place to save the money. Different options have different benefits and growth possibilities. Here are some top choices:

Whole Life Insurance

A life insurance policy purchased on your grandchild’s life, allows you to save money where it will have guaranteed growth and the opportunity to earn dividends.  Unlike many of the traditional options for saving, money kept in a life insurance policy is accessible for use at any time (there are no restrictions for what the money can be used for) and loans can be taken without incurring early access penalties or losing guaranteed growth.  The life insurance policy will need to be owned by an adult, but ownership is transferable making it easy to give the policy to your grandchild in the future.

In addition to the savings element, a life insurance policy also provides security for your grandchild’s future.  Life insurance policies have benefits that can help in the case of a critical, chronic, or terminal illness, and there is also an option for disability benefits that can help provide funds for specialized care and/or income if needed.

Custodial accounts (UGMA/UTMA)

These accounts let you save money that an older family member will oversee/manage until the grandchild is an adult. 

UGMA accounts are for financial things like stocks or bonds. UTMA accounts can have any kind of property, whether it’s something tangible or intangible. You can open these accounts at most big banks or brokerages. The person in charge can use money in the account for things that help the child. This makes these accounts really flexible.

529 college savings plans

These are special plans each state offers to help save for school. Anyone can open a 529 plan for a student. Even though these accounts are mainly for college costs, you can also use them for K-12 schools, training programs, and paying back student loans.

Money in a 529 plan grows tax deferred. And, if you withdraw the money for school costs, you won’t pay taxes on it. But, if you use the money for other things, you’ll have to pay taxes and a 10% fee.

Unlike custodial accounts, 529 plans do not give the student automatic control of the money when they become an adult. If you opened the 529 plan, you’ll still be in charge.

Series I or EE bonds

You can buy these savings bonds from the U.S. government on the TreasuryDirect website. EE bonds have a set interest rate and last for 30 years. The Treasury promises they’ll double in value in 20 years. If they don’t, the federal government will chip in to make sure it happens.

Series I bonds are pretty safe and have a feature to help protect your money against rising prices (inflation). They have two interest rates: one that stays at a fixed rate and one that changes every six months based on inflation.

You can cash in these bonds anytime from 1 to 30 years after getting them. However, if you take the money out before 5 years, you’ll lose three months of interest.

Certificates of deposit (CDs)

CDs are like special savings you can set up at most banks or credit unions. They have a set interest rate for a certain time, usually a few months or years. Taking out the money early usually results in a penalty, but they can earn more than regular savings accounts. 

Youth savings accounts

A lot of banks and credit unions have savings accounts made for kids and teenagers. They often have low fees and sometimes come with tools to help kids learn about money. An adult can start the account with the grandchild, and both can deposit or withdraw money. That being said, some banks might have rules about how much and how often deposits and withdrawals are allowed.

Having this kind of account can be a good way for your grandchild to learn about banking. They can check their account online and see how their savings account grows. It’s a chance to talk with them about saving, money, interest, and how to be responsible with finances.

Youth savings accounts might not grow as fast as other options. But some places offer good interest rates. As an example, Alliant Credit Union gives more than 3% interest if there’s at least $100 in its Kids Savings account.

How to Save Money for Your Grandchildren

Saving for your grandchildren isn’t just about putting money away. It’s about being consistent, planning ahead, and making smart money choices. Here are some steps to build a solid financial gift:

Set up a savings goal

First, think about what your grandchild might need money for and decide on your savings goal. How much money do you want to save, and when do you think your grandchild will use it? Knowing this will help you figure out how to save and keep you focused.

Save consistently

One of the best ways to save is to put money away regularly, even if it’s just a little bit. Those  little bits can add up and grow with interest.

To make sure you save consistently, you can set up automatic transfers. This means money will move from your account to your grandchild’s savings without you having to do anything. Most banks let you set this up on their app or website.  If you’re saving money in a life insurance policy, the insurance company can set up an automatic monthly premium for you. 

Increase your savings bit by bit

As you get better at managing money, or if you earn more, think about saving more. Maybe you got a raise at work or a bonus, and you can use some of that to boost your savings. Increasing the amount you save every now and then can make a big difference over time.

Spread out your investments

One smart way to grow your savings is by putting your money in different places, and not keeping  all your eggs in one basket. Whole life insurance is a great place to start because it provides protection and guaranteed growth that is not subject to market performance.  Once you have something guaranteed you can add other investments such as stocks, bonds, and mutual funds. Over time, this approach can lead to better growth of your money.

Check and change if needed

Life changes, and so should your savings plan. Maybe you have a job that pays more or your grandchild wins a scholarship. Adjust your savings plan based on what’s happening.

Tips for Saving After You Stop Working

If you’re retired or about to retire, here are some ideas on how to save for your grandchildren and still enjoy your own time:

  • Wait to take Social Security: If you hold off on getting Social Security until you’re older, you’ll get more money every month. This can give you extra cash for fun stuff and for saving.
  • Look at your insurance: As you get older, what you need from insurance might change. Check to make sure you have the coverage you need.  Part of saving for your grandchildren’s future can be the legacy/inheritance you pass on to them.  Life insurance is a great way to build this legacy, but it’s also important that you have the right kind of life insurance so that you’re not paying for coverage that will go away when you need it most.
  • Use special savings accounts: Accounts like Roth IRAs can help your money grow, even when you’re retired. The money in these accounts can usually be taken out tax-free. This can be a great way to add to your grandchild’s savings.
  • Earn money from what you love: Maybe you’re good at making things or have a hobby you’re passionate about. You could sell what you make on sites like Etsy or teach others your hobby as a fun way to earn extra cash.
  • Think about your legacy: When planning what happens to your assets after you’re gone, think about your grandchildren. You can leave them part of your money or property.

Create a Savings Plan With McFie Insurance

By understanding where to save and how to make your savings grow, you’re setting up a great gift for your grandchild’s future. Planning ahead can help your grandchildren significantly. It also shows them how important it is to be smart with money.

At McFie Insurance, we value family, and we want to help you save for yours. If you’re looking to save for your children or grandchildren, let McFie Insurance help you create the perfect plan for your needs. We offer financial guidance and formulas, created by our own financial professionals. Contact McFie Insurance to start building your wealth today.