If you want to put aside some money for your grandchildren you may have looked into the best bank accounts for a grandchild or thought about children’s savings accounts or kids’ ISAs. With the amount of different options available, each with different benefits and terms and conditions, it’s easy to get overwhelmed and find it difficult to make a decision.
This blog will guide you through the process, explaining the different types of accounts available, the documents you'll need to open an account, and the benefits of getting your grandchild or grandchildren involved in the savings process.
Whether it’s teaching them about money management and saving or securing their financial future, helping them save money for a house, or university, or even plan for their retirement, saving together will set them up with the lifetime skills they need to spend money wisely. Here’s how to do it:
Create your budget
Some bank accounts or savings accounts have minimum or maximum amounts you can pay in each month. For example, some only allow you to pay in a maximum of £100 a month, while savings accounts may require a regular monthly deposit.
If you have enough money to give your grandchildren more than £100 a month, then a regular child's account may not be for you.
Consider your long term savings goals
One of the most important things to think about when deciding whether you want to open an ISA, a children’s bank account or a kids’ savings account for your grandchildren is access to your money. Do you want the money to be locked in place until they are 18 or would you like to give them more choice in how they spend it?
Most Child ISA accounts only allow the child to access the funds once they turn 18. For some people, this helps them avoid the temptation to dip into their savings but others might like earlier access to pay for things like holidays or driving lessons.
Can Grandparents 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 depends on the account provider.
This applies mostly to savings accounts offered by banks. With 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
For grandparents saving for grandchildren there are three 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 grandparents open a savings account for a grandchild?
Can A Grandparent Open A Children’s Savings Account For A Grandchild?
With as little as £1, you can start a Children’s Savings Account for your grandchild. It’s one of the best ways for grandparents to save for grandchildren as the child can usually access and use this account from as young as seven. When choosing the best child’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. You’ll just need a form of ID for the child, like a birth certificate or UK passport. A key advantage of opening one of these Children’s Savings Accounts for your grandkids is that any interest earned on their deposit is tax-free.
Can Grandparents Open A Junior ISA?
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.
How much can you put into a Junior ISA then?
Currently, the maximum savings limit for Junior ISAs is £9,000 per year, though this limit is subject to change 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 advertised. 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 in the longer-term, 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.
Can A Grandparent Open A Trust Fund For Grandchildren?
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.
Buying premium bonds for grandchildren is another investment option. You can buy a premium bond for grandkids 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 money 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
· While interest over £100 is potentially taxable if the deposits have been made by parents, grandparents are exempt from any tax liability
· 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
Junior ISA
· All interest earned on savings is tax-free
· Only parents can set up an account for the child, but others like grandparents can contribute
· 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.
How a HyperJar can help you save and spend money with your grandchildren
Opening a Children’s Savings Account or contributing to a Junior ISA set up by their parents helps finance a child’s future and teaches them the value of saving money. But what about spending money? If you want to help them develop good spending habits, opening an award-winning HyperJar account to share with your grandchildren aged 6-15 can help them to learn great money habits for life.
You can send them money for anything from birthdays to driving lessons to ‘well done’ surprises post-exams. They’ll get a prepaid debit card for kids aged 6+ to spend their own money, and they can use the HyperJar app to analyse their spending. You can even share a jar with them for family holidays together. HyperJar has been featured in Which? Magazine, the BBC and on Martin Lewis’s site, Money Saving Expert and praised for its account features and kids’ cards.
All you need to do is download the HyperJar app and fill in your details. There are no credit checks and you can also get a spending card for yourself. Adult accounts have extra benefits such as cashback and no FX fees on spending abroad.
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