Old English sandig "of the nature of sand;" see sand (n.) + -y (2). Meaning "of yellowish-red hue" (in reference to hair) is from 1520s.
late 15c. as a nickname for Alexander; as the typical name for a Scotsman from 1785, also drawing on the hair-color sense of sandy (adj.). Also Sawney, and with diminutive form Saunder preserved in surnames.