How can grandparents save for their grandchildren?

When it comes to saving for your grandchildren, what are your options?
Grandparents building gingerbread house with grandchildren | wealthify.com
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We’re pretty sure that one of the first rules of becoming a grandparent is that you need to spoil your grandchildren rotten. That could be by giving them sweets every time you see them or slipping them some extra pocket money when their parents aren’t looking.

But what are the best ways to save money for your grandchild? There’s actually a lot of things you might want to think about.

Saving for your grandchildren’s future

As brilliant as it feels to give your grandchild a sneaky £10 for sweets here and there, it can feel even better to know that you’re helping them buy something much bigger. And what’s more, it may not even cost you that much!

Now, we wouldn’t dare to suggest you stop spoiling your grandchild – we all remember how fun it was having little secrets with just our grandparents – but what about thinking about their future as well?  After all, they won’t be children forever!

How to save money for your grandchildren

Let’s face it, you probably know the basics of saving by now – you put money aside, it piles up, and after a little while, you should have a healthy amount to spend. So, how does this differ when saving for your grandchildren?

For a start, what are you saving for? Do you want to help out with everyday expenses? Are you hoping to buy them an amazing Christmas or birthday present? Maybe you want to help set them up financially later in life?

Depending on your reasons, you may want to look at different ways to save.

  • Short term savings – if you like to be able to treat your grandchildren each month, then building up your short-term savings to help with that is as simple as tucking your money away when you think about it– either physically or in an easy-access cash savings account.
  • Mid-term savings – bigger presents or special occasions may need a little bit more planning than putting money aside willy-nilly. You may want to think about making regular payments into a separate account – say £10 a month. This way you can plan exactly how much you can give to them in advance. If you know when you’ll need the money too, then you could look at fixed-term savings accounts to try and get a better rate of interest.
  • Long-term savings – looking to help your grandchild have a financial head start in life? You may want to look at contributing to a Junior ISA. Any money you put in here is held for your grandchild until they turn 18 years old, at that point it’s theirs to do what they want with it. As Junior ISAs are long term, they typically attract decent interest rates when saved in cash – or you could look at a Stocks & Shares Junior ISA (where your money is invested in the stock market) and help give your grandchild’s money more potential.

How much can you gift to your grandchildren tax-free?

At the moment, you can give your grandchildren any amount of money without it being taxed – provided that you live for 7 years afterwards, otherwise it’ll be included as Inheritance Tax. That said, you can still give away up to £3,000 a year without it being included as tax.

If you have older grandchildren, then you may be interested to know that you can give them a wedding gift of up to £2,500 tax-free.

Can a grandparent open a Junior ISA?

Only parents and legal guardians are able to open a Junior ISA, but that’s not to say you can’t ask your own children to open one! Once a Junior ISA has been opened, anyone can pay into it – you, your partner, all and any of your children, or even your wider family.

How does this work? At Wealthify, we have a Friends and Family Junior ISA feature, which allows the owner of the account to set up trusted people to pay into it. Once you’re set up, you’ll be able to add to your grandchild’s ISA whenever you want until their account hits the Junior ISA allowance for that year – it currently sits at £9,000 and is refreshed on the April 6th each year.

Investing in your grandchildren's future

With a Stocks and Shares Junior ISA, you’re helping the money you’re saving for your child to have even more potential by investing it in the stock market. Of course, it’s important to remember that with investing your capital is at risk and markets can go down as well as up, but over the long-term, your chances of making a gain are seriously improved.

For example, if you’d invested for any 10-year period between January 1984 and September 2020 then there’s an 89% chance that you’d have made more money than you put in.[1]

As a Junior ISA doesn’t let your grandchildren take the money out until they’re 18 (and nobody else can touch it either), then you could have plenty of time to let the markets do their thing and help their money grow. What’s more, the longer the money is invested, the more you’ll see the power of compounding. ‘Compounding’ is when the profits from your investments are put back in and are able to make profits themselves. Over time this can snowball, and your money could really start to stack up.

 

  1. Data from Bloomberg

 

Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.

Please remember that past performance is not a reliable indicator of your future results.

With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

 

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