Saving for your grandchildren can help to minimize the financial burdens they may encounter as they mature. Whether it’s paying for college, buying a first home or providing a safety net in an uncertain job market, these funds can make a significant difference.

There’s also a generational wealth gap to be closed — as economic landscapes have changed over time, so too has wealth distribution. Millennials and Generation Zers own 72 cents for every $1 owned by baby boomers when they were the same age, according to the latest State of U.S. Wealth Inequality report published by the Federal Reserve Bank of St. Louis.

With this economic reality, there’s a particular value in bolstering grandchildren’s financial future. Below are tips on the best ways to build those savings, where to keep them and how to balance them with your own retirement.

Where to store savings for grandchildren

The first step to establishing savings for your grandchildren is to find the right account or investment vehicle to keep them in. Options for where to stash away those savings can vary in terms of their purpose, flexibility and potential for growth. Here are some top considerations:

1. Custodial accounts (UGMA/UTMA)

Custodial accounts, including Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts, are ideal ways to set aside money that will be controlled by an older relative until the grandchild reaches adulthood.

UGMA accounts hold financial assets, while UTMA accounts can hold any type of property, tangible or intangible. Custodial accounts can be opened at most large banks and brokerages. The custodian who manages the account can withdraw funds for expenses benefiting the child, giving these accounts a high degree of flexibility.

2. 529 college savings plans

These state-sponsored education savings plans can be opened by anyone for a single beneficiary (the student who inherits the funds). While primarily designed for higher education costs, 529 plans can also be used to pay for K-12 tuitions, apprenticeship programs and student loan repayments.

The money in a 529 plan grows tax-free and withdrawals for qualified education expenses are also tax-free. If the funds are used for non-educational expenses, however, they will be subject to tax and a 10 percent penalty.

Unlike custodial accounts, ownership of a 529 plan does not automatically transfer over to the named beneficiary once they reach adulthood. You control the account even as the grandchild enters college.

3. Series I or EE bonds

These savings bonds can be purchased directly from the U.S. Treasury through the TreasuryDirect website. Series EE bonds earn a fixed rate for 30 years (or until they’re cashed), and the Treasury guarantees they will double in value in 20 years, even if additional money needs to be added by the federal government to make that happen.

The Series I bonds are also low-risk and provide some protection against inflation by having a combined fixed rate and a variable rate that’s adjusted twice a year for inflation.

Both bonds can be cashed in by a grandchild anywhere between one year and 30 years after they’re opened, though if cashed in before five years, there’s a penalty of three months of interest.

4. Certificates of deposit (CDs)

Certificates of deposit can be opened at most banks and credit unions and offer a guaranteed rate of return over a specific period, ranging from a few months to several years. While they lack flexibility — early withdrawal usually incurs a penalty — they have the potential to grow at a higher rate than other low-risk savings options. For example, investing $2,000 into a competitive one-year CD, with a rate of 5 percent APY or more, could earn you over $100. As such, CDs could be a great option for investing in shorter-term goals for your grandchildren.

5. Youth savings accounts

Many banks and credit unions offer savings accounts designed for children and teens, often with low or no fees and helpful tools to teach kids about finance. The accounts can be opened by an adult as a joint account with the grandchild. How much control the child has over the account can vary by bank and age, but generally, both the adult and child can make deposits and withdrawals with some restrictions.

Having a joint savings account gives your grandchild an opportunity to learn about banking transactions firsthand. Using online access, they can regularly monitor their savings growth. This can open up discussions about saving, interest and financial responsibility.

The potential for growth may be lower with youth savings accounts than with some other options. But you can still find some attractive rates if you shop around. Alliant Credit Union, for example, pays over 3 percent APY for balances of $100 or more on its Kids Savings account.

How to build savings for your grandkids

Building savings for your grandchildren isn’t just about stashing away money. It’s a process that requires consistency, planning and effective use of financial resources. Here are some practical steps to create a robust financial legacy:

1. Develop a savings plan

Start by outlining your grandchild’s potential needs and your specific financial goals. How much do you intend to save, and by what age do you hope your grandchild will start using the funds? Setting clear objectives will guide your saving strategy and keep you on track.

2. Make regular contributions

One of the simplest yet most effective savings strategies is making consistent contributions, even if they’re a small amount. Those small amounts will accumulate over time and earn more as they compound.

Make your savings contributions fail-proof by setting up automatic transfers from your account into a grandchild’s savings account. Typically, automated savings transfers can be set up through a mobile banking app or online banking portal. You can designate a specific amount to be transferred at regular intervals, such as monthly or bi-weekly.

3. Incremental increases

As you more effectively budget and invest, consider gradually increasing your contributions over time. If you’re working, these increases could come in line with salary growth or bonuses.

4. Diversify investments

One way to grow your savings is to invest in diverse assets. The intention behind distributing investments among various opportunities is to spread your risks. A mix of different types of investments — such as stocks, bonds and mutual funds — can help protect against market volatility and provide a potential for better returns in the long run.

5. Review and adjust

Regularly review your savings strategy as your life situation changes. Maybe you land a higher-paying job and can contribute more, or your grandchild earns a scholarship, decreasing their future education costs.

Tips for saving during retirement

If you’re retired — or looking toward retirement — striking a balance between saving for your grandchildren’s future and fully enjoying your retirement can be challenging.

Here are some tips for saving once you’re past your working years:

  • Maximize Social Security benefits: By delaying your Social Security benefits until you reach your full retirement age or even later, you can increase your monthly payouts. This increases your retirement income, freeing up more cash for enjoyment and savings.
  • Review insurance policies: As you age, your insurance needs can change. Review your policies regularly to ensure you aren’t over-insured and paying for unnecessary coverage. The money saved can be directed toward a savings or custodial account.
  • Leverage tax-advantaged accounts: A tax-advantaged account like a Roth IRA lets your money grow even into retirement. You can generally withdraw this money tax-free and contribute it toward your grandchild’s savings.
  • Turn your passion into profit: Whether it’s baking, woodworking, gardening, writing or another interest, there’s likely a market for your hobby. You could sell craftwork through an online marketplace like Etsy or offer local classes, for example. This can not only offer an opportunity for additional income, but also add a fulfilling and enjoyable dimension to your retirement years.
  • Plan your estate: Consider your grandchildren in your estate planning. You might set aside a portion of your estate to be inherited by your grandchildren, ensuring their financial wellbeing long after you’re gone.

Bottom line

Through understanding your options for storing savings and implementing strategies to grow them over time, you can ensure that you’re making the most of your financial contribution to your grandchild’s future. Foresight and planning will not only benefit grandchildren in the long run, but will also serve as an example of good savings habits that you can pass along to them.