I picked up these swim towels last summer at Wal-Mart for $5.00 each. Just fold the towel in half so it is inside out. (The picture shown below is not inside out. Oops)
Do a simple straight stitch up both sides of the towel, but leave some room at the top for arm holes.
This is about how much space I left for the arm holes.
I cut a half circle for the neck hole. BE CAREFUL! It probably does not have to be as big as you think. I may or may not have had to stitch some of it back up, as the opening was too big and kept falling off their shoulders. Use a shirt to measure or start with a small half-circle and then work your way bigger as needed.
Hit the pool in High Style and ROCK that swimwear!