By lola

21 January 2008 17:35

I want to give my grandchildren a nest egg - what's the best way to save for them?

What is this?

 

Yours Expert Answer

By Yours Money Expert

Most older children are very happy to accept gifts of money direct! But it is possible you'd prefer to invest some money on the child's behalf, rather than seeing the money frittered away. Here are some options for you to have a think about...

Children's Bonus Bond

If you can manage £25 per child, why not buy them a Children's Bonus Bond each? When they're old enough to understand, they'll appreciate the fact that these will accumulate in value until they reach age 21. 

Children's Bonus Bonds are available from National Savings and you can obtain an application form at your Post Office. At the time of writing, the bonds pay just over 4.25 per cent compound interest, and can be bought for any child under the age of 16. The rate of interest quoted when you buy each bond stays fixed for the next five years and all income is tax-free.

For more information National Savings & Investments

Premium Bonds

You might feel it would be more exciting, both for you and your grandchild, to buy some Premium Bonds, and you would no doubt appreciate joining in the celebrations if your grandchild receives a prize!

Minimum purchase price is £100. Again, you can buy the bonds on your grandchild's behalf as long as they are under age 16.

For more information National Savings & Investments

Child Trust Funds

If your grandchildren were born after August 31, 2002, they are eligible for a Child Trust Fund. For each child that qualifies, the Government will issue parents with a voucher worth £250. The parents may have already decided which bank, building society or insurance company is going to handle the child's investment.

The money invested grows free of tax, and friends and family can contribute up to £1,200 a year (including the Government's voucher and any amounts deposited by the parents). One company that handles such schemes is the Childrens Mutual 

Some plans are simply tax-free deposit accounts; others invest in stocks and shares. If the parents have already opened an account, you'll have no option but to contribute to the existing account. However, many parents have never got around to opening an account, in which case your desire to contribute might help to get things started. 

If you have any influence over the choice of account, you might prefer to go for the ordinary deposit account - that way, you can be certain there will be no loss of capital. One such account is available through the Yorkshire Building Society

Deposit and savings accounts

If you can make regular monthly payments into an account, some banks and building societies offer quite reasonable returns. 

The Halifax is offering what appears to be a very attractive account for children. If you can deposit between £10 and £100 per month, they are offering a return of 10 per cent per gross, fixed for the first year.

After this, the money saved is transferred to another Halifax account offering a more moderate return. Because the capital that will accumulate during the first 12 months is limited, this is not quite the spectacular deal it appears - but it's certainly a fair return and worth considering.