How do you start saving for your grandchildren?

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Can I set up a savings account for my grandchildren?

Yes you can! As a grandparent, you can open a savings account in your grandchild’s name, as long as you have proof of their identity (like a birth certificate). 

Interest your grandchild earns on their savings may not be subject to tax if a grandparent gave them the money.

How much can you gift tax free to your grandchildren? 

Grandparents can give up to £3,000 to family members each year as a gift, without needing to pay inheritance tax. This is £3000 in total as a gift, not per child!

But although it’s hard to think about, it’s worth bearing in mind that your family could end up paying tax on these payments or gifts if you pass away less than seven years after you made the payment. Find out more about it here.

How much money can a grandparent give a grandchild tax free?

Children technically pay tax in the same way adults do. But this usually doesn't actually happen because children don't earn money or income from work. 

In the tax year 2019-20, children have

  • A £12,500 tax free personal allowance

  • A £5,000 starting savings allowance at an interest rate of 0%

  • And a £1,000 personal savings allowance

Your bank or building society pays interest on your savings without taking away tax, so there's no need to let HMRC know your children's savings are tax free.

Keep in mind though that if parents give savings to a child that generates more than £100 a year in interest, this will be taxed at the parent's tax rate (basic, higher or additional). This doesn't apply to grandparents, family members or friends, only parents.

If you’re unsure whether the total amount of interest you will receive could exceed your personal savings allowance then you should check with Her Majesty's Revenue and Customs (HMRC). You may have to pay tax on any interest over your personal savings allowance.

What's a junior ISA?

Also known as a JISA, parents can open one of these accounts to start saving money for their children. Parents are the only ones who can actually open a junior ISA for a child, but family members like grandparents can pay money into the account. 

A JISA locks the savings away until the child's 18th birthday. A JISA is also a good idea for a child if you're planning on putting more than £100 a year away. If you save more than £100 a year for your child, you’ll usually have to pay tax on the savings. But   JISAs are tax-free, so you won’t pay tax even if you save more than £100 a month..

Opening a child a junior ISA can sometimes be a good idea because by the time they turn 18, they might have enough savings to  convert their account to an adult cash ISA!

What about National Savings & Investments premium bonds for grandchildren?

Premium bonds are a popular investment choice, offered by National Savings & Investments (NS&I). Grandparents can buy them, unlike some savings accounts (like the Jisa!) which can only parents can open. 

You can buy premium bonds ranging between £25 and £50,000. And when the child turns 16, they’ll get access to the premium bonds.

The winnings (if you’re lucky enough to have any) from premium bonds are also tax-free. Because you can deposit up to £50,000, this can be a popular choice for grandparents looking to deposit a lump sum of money. 

Keep in mind though that the nature of premium bonds means you might not win any prizes at all! It's all down to chance. 

Also, you won’t earn any savings interest on NS&I premium bonds.

Opening a bare trust for your grandkids

Bare trusts are popular for grandparents looking to save for their grandchildren. As a grandparent setting up the account, you'll keep control of the bare trust until your grandchild turns 18. 

Bare trusts can be useful because there's no annual limit to deposits or withdrawals! People use them for things like paying for a child’s ongoing expenses because you can make withdrawals throughout the time of the bare trust. 

If you’re looking to open a savings account, here’s all you need to know about starting to save with Monzo.💰