Saving for grandchildren

Yes, you can set up a savings account for your grandchild or grandchildren. Grandparents can open an account in a grandchild’s name, you’ll just need proof of their identity, such as their birth certificate (there’s more about the documentation you’ll need below).

Opening a savings account

Choosing the best savings account for your grandchildren will depend on your savings goals. If you’re planning to save for a special birthday or a Christmas present, notice savings accounts might be a suitable choice. Notice accounts offer competitive variable rates and give you the freedom to withdraw your money after a set notice period, usually 30 or 90 days. The interest you earn is typically paid when you make a withdrawal.

Another type of savings account to consider is a fixed rate bond. Fixed rate bond savings accounts might be right for you if you have a lump sum to deposit that you won’t need to access for a number of years. This type of account could be ideal if you’re saving for your grandchild’s education or perhaps a deposit on a house. With fixed rate bonds, your money is locked away, typically for up to five years, and the interest rate won’t change from the day you open the account until the end of your agreed fixed term, so you’ll know exactly what your return will be.

With a notice account or a fixed rate savings, the money you deposit is held in your name, so if you want the money you’re saving to be accessible to your grandchildren, you’ll need to transfer it to them by making a withdrawal.

Starting a junior pension

You may also choose to save into a pension for your grandchildren, such as a junior self-invested personal pension (SIPP). The maximum amount you can save into a SIPP is £3,600 per year. Starting an investment like this early on and taking into account compound interest, a SIPP is a good option to consider to help your grandchildren become financially stable. There is no minimum age to apply for a junior SIPP, so you can open one on the day your grandchild is born.

Children can receive as much as £18,500 from savings without paying any taxes, and just like adults, they are also entitled to a tax-free personal allowance of £12,500 (2020/21 tax year).. One thing to be mindful of is the £100 rule for parents: if the child’s savings generate more than £100 in interest per year, they are taxed at the parent’s tax rate.

What documentation is required to open savings accounts for my grandchildren?

If you’re planning on opening a grandchild savings account, you can typically open one in the child’s name if you have the necessary documentation (except for Junior ISAs). In most cases, you may only need the child’s birth certificate to open a savings account for your grandchild. This will depend on the financial provider, so it’s always best to check the details.

You can find out more about gifting money to your children here.

The type of savings account you open for your grandchild will depend on several factors, including how much you have to deposit, whether you’ll need access to the money and how long you are prepared to wait for a return on your investment. 

If you have a lump sum already set aside and want to reap the benefits of high interest rates, you could choose a fixed rate bond, but you will need to be able to set aside the money for a specified duration. 

Alternatively, notice accounts also offer competitive rates of interest whilst allowing you to access the money provided you give the required notice.