Dear Grandma and Grandpa, all I want for Christmas is a savings account
But what’s the smartest way to invest festive cash for your grandchild?
WHEN Jim Wilkinson’s daughter, Sarah, was born 35 years ago, he opened a Post Office savings account in her name and popped in £100.
It meant that when friends or relatives sent cash gifts on her birthday or at Christmas, he and his wife, Sally, could put the money away for her future.
By the time she turned 21, this nest egg had grown to £5,000. Sarah then continued adding to it over the next eight years, until she had enough for a house deposit.
Last month, Sarah, 35, gave birth to Annabel. Now, Jim, 71, wants to do the same for his new granddaughter, so she can put the cash towards university or a house, just like her mum did.
The retired insurance underwriter says: ‘I was brought up to believe that if you want something, you need to save for it, and I remember being delighted when I earned sixpence in interest on £1 savings at the end of a year.’
Regularly putting aside even a small amount for a child could make a real difference when they are older. For example, if you gifted £100 each year in an account paying 3.5 pc, your child would have more than £2,500 by the age of 18.
If you could stretch to £50 a month, they would have nearly £15,000, according to advice site Savings Champion.
For parents and grandparents looking to follow Jim’s lead by ditching the Black Friday sales in favour of giving the kids a savings habit this Christmas, here are your options . . .
PREMIUM BONDS
GRANDPARENTS and parents can already buy Premium Bonds for children. But, as of next March, aunts, uncles, godparents and even family friends will also be able to gift Premium Bonds in their loved ones’ children’s names. Currently, you must buy at least £100 worth of the bonds but, from March, the minimum investment will be just £25.
Premium Bonds give savers the chance to win tax-free prizes every month, ranging from £ 25 to £1 million. Every £1 bond number has a 24,500-to-1 chance of winning. The money is 100 pc backed by the Government.
Any Premium Bond winnings are automatically sent to the child’s parent or legal guardian. For more information, visit
nsandi.com or call 08085 007 007.
JUNIOR ISAS
THESE are tax-free accounts that let you save money for under-18s.
While grandparents can pay money into these accounts, they can be opened only by parents or legal guardians. You can put away up to £4,260 in this tax year.
Children can begin managing the account when they reach 16, however they cannot withdraw anything until they turn 18.
The money can be kept in cash or split between cash and shares.
Investing in the stock market could give you a better return over time, but you might also lose money. Coventry Building Society currently offers the top Junior Isa with a variable rate of 3.6 pc. If the rate drops, you can transfer the funds to a better deal.
Tesco Bank’s Junior Isa pays a variable rate of 3.15 pc.
SAVINGS ACCOUNTS
FOR many people, a Junior ISA isn’t necessary, as they wouldn’t pay tax anyway.
Children have the same tax allowance as adults — £11,850 for this year — and savings tax breaks which mean they could actually earn up to £17,850 in interest tax-free.
But if you are a parent gifting money to your own children, you need to beware of a tax trap that means if the interest on the child’s account exceeds £100 in any year, you will have to pay tax on it at your normal income tax rate, unless it is held in a Junior Isa. Grandparents and other relatives are not affected by this rule.
Skipton Building Society’s Children’s Saver account pays 2.25 pc interest a year and can be opened by parents, grandparents and close relatives in branches or by post. You can pay in up to £50,000. The relative will act as a trustee of the account until the child turns 18 (or 16 in Scotland).
Virgin Money’s Young Saver also pays 2.25 pc interest and can be opened by grandparents. You can save up to £25,000.
For those who want to drip feed cash gifts of between £10 and £100 a month, Halifax offers a Kids’ Monthly Saver with an interest rate of 4.5 pc for a year.
The child must be 15 or under and their parent or legal guardian must give permission.
If you paid in the maximum amount, you would save a total of £1,227, including interest, after a year.
SET UP A TRUST
ORDINARY savings accounts often give the child control from the age of 16 — even if you are named on the account.
If you’d rather they got access to their money when they turn 18, you need to set up the account as a ‘bare trust’. You — or someone else of your choosing — will act as the trustee. But the money is, under law, the property of the child — the beneficiary. They will automatically get access to it when they turn 18 (or 16 in Scotland).
In the meantime, any statements or letters about the account are sent to you as the trustee, who is also in charge of making deposits and withdrawals.
You should be able to set up a bare trust for any account. But the process can be complicated, with extra forms to fill in.
As with all children’s accounts, you will need to provide proof of your own identity, as well as that of your grandchild, including their birth certificate and proof of where their parents live.
Nationwide’s new Future Saver is automatically set up so that parents retain control of the money until they decide to hand it over to the child — for example, on their 21st birthday. Only adults with parental responsibility for the child can be named as the account holder, but grandparents and other relatives can add to it.
It pays interest of 3.5 pc on up to £5,000 a year if the parent has their main current account with the building society or 2.5 pc if they don’t. It allows one withdrawal in each 12-month period; if you make more, the rate drops to 0.5 pc for the rest of the year.