Grandparents spend an average of over eight hours a week looking after their grandchildren, according to the report from insurer Ageas, in partnership with the International Longevity Centre (ILC-UK).
The report estimates that nine million grandparents make up "the UK's grandparent army" of childcarers, including 2.7 million who are heavily relied upon to regularly provide childcare.
It calculates that grandparents save families around £1,786 in formal childcare costs per year, equating to a £16.1 billion saving across the UK.
The average figure is based on grandparents looking after one child in the family, so those looking after siblings could be saving families even more.
The research found two-thirds (65%) of grandparents across the UK provide some form of childcare for their grandchildren, making it easier for parents to go out to work.
More than a quarter (29%) of grandparents say their adult children have heavy workloads so need childcare support, and one fifth (18%) say their children cannot afford formal childcare.
Two-thirds (68%) of grandparents offer financial contributions to their grandchildren's upbringing, such as payments towards clothes, toys and hobbies, leisure activities and pocket money.
And as well as babysitting themselves, 23% of grandparents also say they pay for babysitters so that everyone can have a break.
Baroness Sally Greengross, president and chief executive of ILC-UK, said: "It is clear grandparents have become one of the biggest sources of childcare after parents themselves, allowing more parents to work and thereby reducing the costs of childcare.
"Nevertheless, how we support and reward this growing unpaid army and how we reconcile an increasing need to work longer for the over 50s, 60s and 70s and shape and expand family friendly policies for all, remains subject to debate."
Recent research from Royal London suggested thousands of people who are helping to bring up their grandchildren could be missing out on valuable credits which would help to build up their pension.
Under the rules surrounding specified adult childcare credits, if a mother goes back to work after the birth of a child she can sign a form that allows a grandparent, or other family member, to receive National Insurance (NI) credits for looking after the child.
Grandparents who give up their job to look after their grandchild could otherwise be losing out on their state pension rights.
Royal London found an average of just two grandparents per parliamentary constituency were benefiting.
Andy Watson, chief executive at Ageas, said: "Grandparents are saving working families billions every year."
More than 2,000 people were surveyed for the Ageas and ILC-UK report, which used average childminder costs as a base for its calculations.