As we get older and our families grow bigger, a top priority for grandparents’ is saving for grandchildren.
When you save money for your grandchildren, you’re doing more than financing their future – you’re allowing them to learn financial skills they’ll use throughout their life.
Some savings accounts allow the child to access them from the age of 7, whereas others can only be accessed when your grandchild is 18. In both cases, your grandchild can see the financial value of saving money over time.
Whether to teach them about money management and saving or to secure your grandchild’s financial future, helping them save money for a house, save money for university, or even plan for their retirement, you want to know the best way to start saving for grandchildren.
Below we’ll discuss the options available to grandparents saving for grandchildren, including the types of savings accounts available for children, whether a grandparent can set these accounts up, and a couple of alternative saving/investment options.
Can a Grandparent Open a Savings Account for a Grandchild?
Depending on the type of savings account, a grandparent can open a savings account for their grandchild. In most cases, you’ll need to provide the child’s birth certificate to set up the account, though the documentation required will depend on the account provider.
This applies mostly to savings accounts offered by banks. By government schemes such as Junior ISAs, only the parent can set up the savings account – but grandparents are free to make contributions.
Types of Savings Accounts for Grandchildren
Grandparents saving for grandchildren should be aware of three major types of savings accounts: Children’s Savings Accounts, Junior ISAs, and the Child Trust Fund.
Below we’ll discuss the main features of each and answer the question: can a grandparent open a savings account for a grandchild?
Children’s Savings Accounts
With as little as £1, you can help your grandchild start saving in a Children’s Savings Account. Your grandchild can also access and use this account from as young as seven.
When choosing a children’s savings account, there are two major types: instant access and regular savings.
Instant access accounts allow your grandchild to access money from their account as and when they need it. This is the better option if you want your grandchild to be able to use the money you deposit straight away.
Regular savings accounts are focused on building up children’s savings. These accounts usually require a deposit – usually of a minimum amount – each month. Otherwise, the interest earned on the savings may be lower.
There are also rules around when and how money in a regular savings account can be accessed without penalty. However, the restrictions on these accounts are compensated for by a higher interest rate. Also, your grandchild learns a saving habit.
You should browse through the different children’s savings accounts to secure the best interest rates to maximise your grandchild’s savings.
Can a grandparent open a savings account for a grandchild? With the Children’s Savings Account, they can. In fact, any family member can open a savings account for a child.
A key advantage of a grandparent saving for grandchildren via a children’s savings account is that any interest earned on their deposit is tax-free. If a parent were to deposit money into this type of account, this wouldn’t be the case.
Junior Individual Savings Accounts (ISAs) are long-term, tax-free savings accounts available to anyone under the age of 18. Like a Child Savings Account, you can open one with as little as £1, though this can rise to £10 depending on the provider. Your grandchild will be able to take control of the account once they’re 16 but can only withdraw from the account at 18.
Currently, the maximum savings limit for Junior ISAs is £9,000 per year, though this limit is subject to change upon each new tax year.
There are two types of Junior ISA: a cash Junior ISA or a stocks and shares Junior ISA.
In a cash Junior ISA, money saved earns interest according to the interest rate of the ISA. On the other hand, money deposited into a stocks and shares Junior ISA is invested in the stock market.
This makes the latter type of Junior ISA riskier. Due to stock market volatility, your grandchild may receive a smaller return than was deposited if their investments don’t perform well. However, a stocks and shares ISA has the potential to achieve higher returns and outperform the interest earned from a cash Junior ISA, which might be worth the risk.
Can a grandparent open a savings account for a grandchild? While grandparents can’t set up a Junior ISA for their grandchild – only their parents can – they can contribute to one to maximise their grandchildren’s tax-free savings.
Child’s Trust Fund
Like a Junior ISA, a Child Trust Fund is a long-term tax-free savings account available to children born between 1st September 2002 and 2nd January 2011.
Since this initiative is closed, you can’t open a new Child Trust Fund – but you can still make contributions of up to £9,000 a year if your grandchild already has one.
If the child’s parents didn’t set up their account, then it’s possible HMRC set up and made the first deposit on your grandchild’s behalf. So, if your grandchild was born between these dates, then you should contact HMRC to find the Child Trust Fund of your grandchild.
Child Trust Funds work in pretty much the same way as a Junior ISA. The child can manage and access the account from the age of 16 and withdraw money from 18, though it’s important to note that a child can’t have a Junior ISA and a Child Trust Fund.
How Should You Invest Savings for Your Grandchildren
There are many options for grandparents saving for grandchildren.
More than savings accounts, there are junior pensions called Junior SIPPs (Self Invested Personal Pensions), allowing children to begin saving for their pension early. This can give grandparents saving for grandchildren peace of mind that their grandchildren will be taken care of when they come to retire.
Premium bonds are another investment option your grandchild can receive from the age of 16. You can buy a premium bond for as little as £25, and your grandchild is guaranteed the bond’s full value once it reaches maturity. However, whether they earn anything extra is down to luck. Unlike other types of bonds, UK premium bonds put the bond owner in the running to win a draw each month. Prize amounts range from £25 to £1 million, but the likelihood of winning is slight.
So, grandparents saving for grandchildren are typically better off investing in savings accounts such as the Children’s Savings Account or Junior ISA.
But which one is right for your grandchild? Let’s look at the main features of both.
Children’s Savings Account
· Interest over £100 is taxable – unless deposited by grandparents
· Anyone can set up an account for your grandchild
· Money can be withdrawn by the child and the person who set up the account before the child is 16
· All interest earned on savings is tax-free
· Only parents can set up an account for the child
· Money can only be withdrawn by the child when they turn 18
If you want to set up your grandchild’s account yourself and want your grandchild to be able to use the money before they turn 18, then the Children’s Savings Account might be the best option for you.
If you want to help your grandchild prepare for their future, rather than fund their present, it might be better to work with their parents to set up a Junior ISA and contribute to that instead.
Or, if you want your grandchild to receive the benefits of both, there’s no rule against your grandchild having both types of accounts.
HyperJar’s Savings Card for Kids
Saving for grandchildren is a top priority for grandparents. Opening a Children’s Savings Account or contributing to a Junior ISA set up by their parents helps finance their future and teaches them the value of saving money.
Learning financial skills is essential for every young person, and giving your grandchild a prepaid debit card for kids aged 6+ can help them to do just that. HyperJar allows kids to get into the habit of using a card while teaching them about financial responsibility.
The HyperJar app allows kids to budget effectively, saving money in ‘jars’ to decide on things to save up for and budget accordingly to reach their goals.
You can read our guide to debit cards for kids to find out more.