Q:

What are some tips for setting up a savings account for a grandchild?

A:

Quick Answer

One tip for setting up such an account is to determine what type of account suits the child's long-term needs, especially if the account pays for education expenses, notes Fidelity Investments. Another tip is to contact more than one bank to find the most favorable terms, notes Zacks Investment Research.

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Full Answer

Ordinary savings accounts typically offer low interest rates but keep the money available, notes Bankrate. They also generally have a low start-up cost and are not subject to the whims of the market like some other types of accounts.

If the money pays for educational expenses, other types of accounts provide benefits that an ordinary savings account does not. Custodial accounts permit grandparents to set aside money for grandchildren that becomes the property of the grandchildren when they reach the age of majority. A 529 college savings plan permits the grandparent to retain control of the money until he wishes to transfer it and allows the grandchild to pay for some educational expenses tax-free. A Coverdell education savings account allows more investment options than a 529 plan but limits yearly contribution, notes Fidelity Investments.

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