As a grandparent, you may be thinking about your grandchildren’s future. Contributing to their savings and investing in their future will help to give them a great start in life. You may wish to help them with future university fees or even give them a kick start in saving for their retirement. If you are unsure of where to start, here are some ideas of accounts to choose from.
1. Child Savings Accounts
One of the most popular ways that a grandparent saves money for their grandchildren is to open a child savings account. This should be relatively straightforward as long as you open the account in the child’s name and have identification documentation (such as the birth certificate).As long as the child earns less than the personal allowance (currently £9,440) then a grandparent can fill in an R85 form to ensure interest is paid without tax being deducted automatically. Grandparents are at an advantage as no amount of interest earned on the money they put in is subject to tax, while only the first £100 of interest earned by money invested by parents is tax-free.
They are many banks which provide great rates on children’s savings accounts. However, it’s important to read the small print to gain information on restricted access, changes in rates etc.
2. Junior ISAS
If you are a grandparent, it is not possible to open a Junior Isa for your grandchildren, but you can make contributions to one that is already open (up to an annual limit of £3,720).It is possible to pay into this type of account in a number of ways such either in the bank or online. To make a regular contribution, you can set up a direct debit. The main downside to Junior Isas is that the child has control of the money once they turn 18. This is of concern to many parents and grandparents as they have no say in how that money will be spent.
Another option is a stocks and shares Junior Isa which has the potential to generate greater returns over the long term than cash savings accounts (although the risk is higher of course).
3. Premium Bonds
Premium bonds are a financial investment by which you have a 26’000-to-one chance of each £1 winning up to £1million each month. The minimum investment is £100 and you can buy these in the name of your grandchild. You can also buy Children’s Bonds on behalf of under 16s with a minimum investment of £25. The five year renewable bond pays 2.5pc. It is owned by the child but the control is kept under the guardian’s name until their 16th birthday.
4. Stakeholder Pension
If you are retired, you may be realising the importance of preparing financially for your future. You may be thinking in the long term when investing for your grandchildren. It is possible for you to pay into a stakeholder pension which the child will take control of at 18 (but cannot access until 55).This money benefits from tax relief. This means (for example) that if a grandparent pays £2,880 a year, the Government will increase this up to a limit of £3,600.
Saving for your grandchildren will give them an invaluable head start in life. If you start saving now, the interest you will receive can start to build up and may amount to a considerable sum when your grandchildren have grown up. Spend some time comparing options to make sure you get the best rates.