Saving For Grandchildren: A Simple Guide

*Tax treatment depends on individual circumstances and may be subject to change in the future.*

As our families grow, it’s only natural to start thinking about the future. University costs, first cars, first houses: having a strong financial plan can be a great way to set your children up for a head start in life.

But when your children start having kids of their own, grandparents can worry about whether their grandchildren will receive the same kind of support and opportunities their children did, especially in a difficult economic climate.

In this article, we will explain some options grandparents have for saving money for their grandchildren.

Can Grandparents Open A Savings Account For Grandchildren?

When it comes to saving money for the children in our lives, there are a range of options available to suit any type of saver.

This article will be covering four of the most popular types of Children’s Savings products available at Sheffield Mutual to help grandparents understand how they can start saving for their grandchildren.

Junior ISA

A Junior ISA, sometimes called a JISA, is a way you can start building a nest egg for the children in your family.

Several advantages make a Junior ISA a great product for children’s savings.

Like an adult ISA, a Junior ISA is a tax-efficient product, meaning any gains within the account are not subject to tax, allowing the money to grow more efficiently.

The Junior ISA also has a generous £9,000 annual limit, allowing family and friends to meaningfully contribute to a child’s future.

In addition, when the child named on the ISA reaches the age of 18, they can withdraw funds or roll the value over into an adult ISA without affecting their annual ISA allowance, potentially giving them a good head start in saving as an adult. The child could even choose to compromise and withdraw some money if required, leaving the rest in their new adult ISA.

However, grandparents usually cannot open a Junior ISA on behalf of their grandchildren. A Junior ISA can only be opened by an adult with ‘parental responsibility’ for a child, so unless a grandparent is the primary guardian of their grandchild, they may not be able to open an account on their behalf.

However, once an account has been opened, any adult can contribute. As long as the child’s parent or guardian opens the account, grandparents can make contributions and help to provide financial support for their grandchildren’s future.

Children’s Tax Exempt Savings Plan

A Children’s Tax Exempt Savings Plan is another way to save for your grandchildren, as well as providing enough unique features to complement other savings strategies.

Like a Junior ISA, a Children’s Tax Exempt Savings Plan is also tax-free, meaning that the child you are saving for can receive the full amount of savings, without any tax deductions. In addition, this tax-free value is provided in addition to a child’s Junior ISA allowance, meaning that these can be especially useful if a Junior ISA has already reached the maximum contribution limit for the financial year.

There are a range of other advantages provided by the Children’s Tax Exempt Savings Plan. At the beginning of the plan, savers can choose whether to make regular monthly contributions up to £25 per month or annual lump-sum contributions up to £270. In addition, the person opening the plan can choose how long it should last, ranging from 10 to 25 years.

In addition, a Children’s Tax Exempt Savings Plan provides what’s called a ‘sum assured’ after the contribution amount and investment period have been agreed upon.

The ‘sum assured’ is the minimum amount that will be received upon maturity, giving our members the confidence to invest knowing they have a guaranteed figure at the end of the plan, provided all premiums are paid. 

*Bonuses are also calculated based on the sum assured rather than the amount paid in. Bonuses are not guaranteed*

Another key advantage of a Children’s Tax Exempt Savings Plan is that anyone, including grandparents, can open it. This means that if your grandchild doesn’t have a Junior ISA, or if you want to save a little bit extra, the Children’s Tax Exempt Savings Plan could be a fantastic way to help add value to your grandchildren’s lives.

However, it is important to note that if funds are withdrawn before the plan matures, the child may receive less than what you invested. Before taking out a plan, it is important to review the key information document and any other important information documents for these plans to make sure they are right for you.

Children’s Regular Savings Plan

A Children’s Regular Savings Plan is a choice for grandparents who are looking to save money for their grandchildren.

Although a Children’s Regular Savings Plan is similar to a Children’s Tax Exempt Savings Plan, it does not benefit from the same tax-free status. As a result, Children’s Regular Savings Plans are often chosen by parents and grandparents who have already reached the limit of their Junior ISA and Tax Exempt Plans, but still want to put money aside.

Like our Tax Exempt Savings Plan, our Children’s Regular Savings Plan can be opened by anyone on behalf of a child.

Children’s Regular Savings Plans also have a much higher contribution limit, allowing parents and grandparents to save up to £1,000 monthly or £10,000 annually for a period between 10 and 25 years. This savings plan is a great option for adults who have exhausted other tax-free allowances and want to save a large amount for the children in their lives.

Like our Tax Exempt Savings Plan, our Children’s Regular Savings Plan benefits from a ‘sum assured’, a return on savings guaranteed as long as payments are made, allowing our members to plan with confidence that their money is safe.

*Bonuses are also calculated based on the sum assured rather than the amount paid in. Bonuses are not guaranteed*

Children’s Investment Bond

A Children’s Investment Bond is a way to invest a lump sum of money on behalf of a child, offering a simple and reassuring way of putting money aside today that can help build a financial foundation for years to come.

Our Children’s Investment Bond allows anyone to make a single lump sum investment between £1,000 and £150,000 for a period that suits them. However, children under 13 will require an adult, referred to as a ‘proposer’, to complete the proposal form. The proposer’s signature will also be required to surrender a bond if a child is under the age of 16 at the time of the request.

Although there are no fixed terms, these types of investments are designed to be held for at least five years, which is important to factor into your financial plan. Although a bond can be surrendered before five years, the sum assured is not guaranteed, and the child may end up receiving less than you invested.

Like our Tax Exempt and Regular Savings Plans, our Children’s Investment Bond offers customers a ‘sum assured’ guaranteeing a minimum return on their savings. Because of the lump sum investment and sum assured, a Children’s Investment Bond is an option to create a one-off gift for a child’s future, with no commitment to monthly or annual contributions.

*Bonuses are also calculated based on the sum assured rather than the amount paid in. Bonuses are not guaranteed*

Start Saving For Grandchildren At Sheffield Mutual

Although saving money for your grandchildren can provide comfort and security for their futures, a savings plan represents more than simply a financial investment. Planning for your grandchildren’s future is a lasting gesture of foresight and care, showing your family that you want to provide them with every advantage you can.

If you are interested in creating a savings plan for your grandchildren, consider taking advantage of our Junior ISA, Tax Exempt Savings Plan, Children’s Regular Savings Plan or Children’s Investment Bond options.

If you are looking for a new way to save for yourself, or if you aren’t sure that the products in this article are right for you, consider trying out our product selector and seeing if you can find the perfect way to complement your savings strategy.

If you would like to talk to someone about our products, feel free to contact us; a member of our team will be happy to help with any enquiries you may have.

This article provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.