You do not need to capitalize the word grandma in the sentence "My grandma says hi" because it is being used to describe the person you are talking about, not as a replacement for her name. However, if you use the word grandma as if it were a name, or in place of the name of the person, it should be capitalized. This is true for all kinship names, which are words like brother, sister, father, mom, grandma, cousin, and aunt.
If the kinship name is being used to describe the person you are talking about, with or without that person's name, do not capitalize it. Uses like this usually come after a pronoun such as my, his, her, our, or their. The following sentences show this.
If the kinship name is being used in place of the person's name, and is being used like a proper noun, or it is being used as part of their name, it should be capitalized. The following sentences show this.
Sometimes a kinship name is used as a general term to describe anyone of that relation, and not someone specific. These should not be capitalized. The following sentences show this.
Just remember: if a kinship name is being used as someone's name, or nickname, capitalize it. Otherwise, do not capitalize it.