Saving for grandchildren

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There is little more fulfilling than providing financial security for your grandchildren. On this page, you’ll discover effective ways you can save for your grandchildren, the best savings accounts for grandchildren, how much you can save tax-free and how to ensure your savings are working as hard as possible for you, and ultimately for your grandchildren.

The rundown
  • Saving for grandchildren: As grandparents, there are a number of ways you can save for the future of your grandchild
  • Tax-free interest: Children can receive up to £18,500 from savings without paying tax
  • ID requirements: To open a savings account for a grandchild, you may need their birth certificate

Can I set up a savings account for my grandchild?

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).

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How can I save money for my grandchildren?

You have a number of tax-efficient options to choose from if you want to save for your grandchildren, including the following: 

  1. Opening a savings account
  2. Taking out an ISA for your grandchild
  3. Starting a junior pension
  4. Contributing to a child trust fund (for children born between 1st September 2002 and 2nd January 2011)

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.

Taking out an ISA for your grandchild

Although as grandparents you can’t open a Junior ISA for your grandchildren (unless you’re their guardian), your grandchild’s parents can. Once the Junior ISA is open, you can make contributions up to an annual limit. 

Just like ISAs for adults, you can both save and invest with a Junior ISA. The current maximum annual limit you can save into a Junior ISA is £9,000 in the 2022/23 tax year. When your grandchild is 18, they will gain full control of the money and could choose to invest it into an adult ISA or a different type of savings account, or they can choose to withdraw it.

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 £2,800 (£3,600 including tax relief) 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.

Contributing to a child trust fund

If your grandchild was born between 1st September 2002 and 2nd January 2011, they may have savings set aside for them in the form of a child trust fund (CTF). These trust funds were a type of tax-free savings account set up by the government, and which you can still pay into up to £9,000 per year. It’s important to note that you can’t pay into CTF as well as a junior ISA, although you can convert a CTF to a Junior ISA if you wish to.

How much can I save tax-free for my grandchildren?

Children can receive as much as £18,570 from savings without paying any taxes, and just like adults, they are also entitled to a tax-free personal allowance of £12,570 (2022/23 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.

What’s the best way to save for my grandchild?

If you’ve recently had the exciting news that you’re soon to become a grandparent or you’re looking for ways to support your grandchild’s financial future, you might want to look into fixed rate bonds.

If you have a lump sum you want to maximise, you can choose a fixed rate bond with a term to suit you. For example, you might opt for a six month term if you want to make the most of your money quickly, or if you’re looking more towards the longer term, a five year term may be more suitable. You can then choose to gift this money to your grandchild’s parents, or instead reinvest it for the future of your grandchild.

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

What’s the best savings account to open for a grandchild?

The best savings account 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. The top three types of savings accounts to consider for your grandchild are:

Easy access accounts

  • Interest rates tend to be lower (typically, the fewer restrictions on a savings account, the lower the interest rate)
  • Money can be topped up or withdrawn whenever you like
  • There is more freedom for your grandchild

Fixed rate bonds

  • More likely to benefit from high interest rates
  • Cash is tied up for a set period (typically between one and five years)
  • No withdrawals allowed during the fixed period
  • Can’t be topped up – require one single deposit

Notice accounts

  • Usually offer competitive rates of interest
  • Limited access to your cash
  • Can be topped up at any time

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.

Grow savings for your grandchildren at Raisin UK

If you want to open a fixed rate bond or a notice account like the ones covered on this page, register for a free Raisin UK Account today to apply for savings accounts from a range of partner banks online in a few minutes.

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