Saving for their grandchild’s future is important for many grandparents, making finding savings accounts for grandchildren a top priority. With the mortgage more likely to have been paid off and debts all squared, older couples often have more disposable income than the younger generation, which they’re happy to put away to provide for their grandchild’s future. Whether this is to offer them a safety net, some money to put towards their first property or to help fund their education, the desire to use some of this extra cash to provide for their grandchild is high among many older couples.
Rather than simply putting some money away into the first account that comes to mind, a better approach would be to consider the different options and benefits available such as saving in a tax-free account, how much to save or invest, and whether to open an account in the child’s name rather than your own.
Tax-free savings
Accounts which are subject to tax may not provide the best option for savers, especially when compared to those which are tax-free. Furthermore, tax-free accounts may provide higher levels of interest or return, so it’s worth giving them careful consideration.
Some children’s savings plans allow grandparents to pay in an affordable monthly sum to a long-term account. Whilst these accounts are not best placed for those looking to pay in large sums of money over the course of one or two years, they can be better suited to Grandparents looking to build up a tax-free lump sum whilst the child grows up.
Benefits of opening an account in the child’s name
Setting up a savings account in the child’s name – means the total amount saved should not be subject to Capital Gains and Income Tax. Whilst legislation could be subject to change in the future, as it stands, children would not see tax deducted from UK share dividends, which could mean a larger payment once the account matures.
Given that many savings accounts for children are taken out in the child’s name, they should not affect any means testing when it comes to calculating age-related benefits for the Grandparents. In real terms, this means the child’s account will not be subject to tax, whilst it also won’t affect any finances where the grandparents are concerned. It should also not affect the parent’s tax credits, meaning the child can have a fund slowly building-up without negatively affecting day-to-day finances.
These, of course, are the financial considerations of saving for your Grandchild’s future. However, the main reason – and indeed benefit – would be that you could give your grandchild a cash sum when they need it the most.