08 November 2021
Grandparent’s guide to saving for Grandchildren
Are you looking for ways to help invest in your grandchildren’s future financially? We know that many people ask, ‘how can grandparents save for grandchildren?’ and, in this article, we compare the four most popular methods for grandparents saving for grandchildren in the UK.
Before we start, it’s worth being aware that all of the advice below is general and you’ll need to go to your bank for exact information.
Open a savings account
A savings account is the quickest and most simple solution for those who want to start putting money aside for their grandchildren. But you may be wondering, can grandparents set up savings accounts for grandchildren? You’ll be pleased to know that anyone is able to open a children’s saving account on someone’s behalf, provided they have proper documentation such as a birth certificate of the child. You’re also not limited on how much you can deposit, and anyone can deposit if they’d like, making it not just great for grandparents saving money for grandchildren but any other family members who might want to offer a financial gift.
When it comes to savings accounts, although they are easy to use and quick to set up there are two main cons, these are: You’ll receive low-interest rates so your contribution won’t grow significantly and once the child is in control of the account, they will be able to spend the money whenever and however they wish.
Open a Junior ISA
A Junior ISA is a long-term savings account, which allows you to save tax-free for your grandchildren. Unlike with a traditional savings account, you’ll make more interest on your investment here as a reward for not being able to access the money at any time. It’s worth being aware that there is an annual limit of £9,000 (each tax year) that can be deposited.
There are two types of Junior ISA available: cash ISAs and stocks and shares ISAs. The first works as a traditional ISA account and the second will allow you to save and invest your money into stocks and shares, meaning you may make more in the long run.
For grandparents who may be interested in opening a Junior ISA, you will have to get the parents or legal guardians involved to open the account and it will be in their name (and they’ll be able to manage the account) until the child turns 18.
Open a Junior SIPP
We know that thinking about your grandchild’s pension probably isn’t something you’ve done before, but for those who want to, investing in a Junior Self-Invested Personal Pension (or SIPP) can offer some great advantages financially. Allowing access at the age of 55 (in most cases), setting up a SIPP for your grandchild might not be something you’ve considered before but it could be a good option.
That’s because saving this way can have big benefits in the (very) long term. If you start saving as soon as a child is born and contribute as much as possible, you can even set your grandchild up to be a pension millionaire by the time they retire! Because your investment has so long to grow, even if you choose to stop making major payments after a few years, by the time money is cashed out the interest would have made a noticeable difference.
Explaining how much can be made before a child even turns 18 (and might start adding to their pension through work), Unbiased explains: “Assuming that you pay in the maximum amount for 18 years, and that average growth stays at 4 per cent, then by the child’s 18th birthday the pension pot will be worth around £95,000. Now, even if no further payments are ever made into this pension pot, steady interest at 4 per cent would grow the pot to over £620,000 by the time the ‘child’ reaches the age of 65.”
Buy premium bonds
For those who want to contribute a single lump-sum payment now, a premium bond might be the way to go. Unlike other options in this article, you only have to pay into premium bonds once and then gift them to your grandchild. You can buy bonds from a minimum of £25 up to £50,000 and can be in with a chance of winning tax-free prizes each month up to one million pounds. However, this isn’t guaranteed, and the odds of winning are often over 30,000 to 1. Although you won’t lose money with a premium bond, you won’t gain it either unless you win as you won’t get any interest.
You can also set up premium bonds which you contribute to monthly to grow, increasing your chances of winning as each pound you have within a bond is eligible for the prize draw. This can be a nice gift for a grandchild; however, it might not be the best in terms of investment potential.
Talking about getting premium bonds, Love Money advises: “If you're buying the bonds as a gift to mark a specific occasion, you'll need to plan ahead. NS&I suggests you apply at least four weeks in advance to make sure everything is confirmed as the identity and address of everyone on the application form needs to be verified.”
Comparing saving options for grandparents
Look below to compare these four popular saving options to one another in key categories to help make the decision of which is best for you and your grandchild.
| Saving Account | Junior ISA | Junior SIPP | Premium Bonds | |
|---|---|---|---|---|
| Who Can Open? | Anyone (with proper documentation) | Parent/Guardian only | Parent/Guardian only | Anyone can buy and gift |
| Managed By: | The Child | Parent/Guardian until child is 16 | Parent/Guardian until child is 18 | Parent/Guardian until child is 16 |
| Withdrawal Age: | None | 18 | Usually 55 | 16 |
| Saving Limit: | No Limit | £9,000 per year | £2,880 per year | Maximum purchase of £50,000 |
| Who Can Contribute? | Anyone | Anyone | Anyone | N/A |
| Other Things To Note: | Lower interest rates usually apply | Two types of Junior ISAs are available | Minimum contribution of £20 per month | Whether your deposit increases is chance |
How can grandparents save for grandchildren?
- Open a savings account
- Open a Junior ISA
- Open a Junior SIPP
- Buy premium bonds
Saving for your grandchild can help to set them up in life and, by starting early, you can take advantage of investment opportunities and make money in the process. Whether you choose to go the simple route and open a savings account or are thinking long-term and opt for a SIPP, you’re sure to be helping your grandchild and making a big difference to their life.
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