7 ways to save and invest for your grandchildren

The bank of Gran and Grandad is open and ready to give, with one in six of us helping grandchildren financially. One in eight of us give pocket money to younger grandchildren too. If you want to help them out, there are a few new products available to make things easier:

1. The new LISA (lifetime ISA) launched in April allows those aged 18-40 to save for their first home or retirement, but not both. Like other ISAs, it works as a tax-free wrapper around savings. Grandparents can add up to £4,000 per year and grandchildren receive a 25% government bonus on contributions, although penalties apply if money is withdrawn money early. It’s a great way of saving for a house deposit, but for retirement, it’s unlikely to perform as well as other pension funds on the market and few firms currently offer LISAs.

2. The Help-to-buy scheme helps grandchildren get on the housing ladder. You can apply until November 2019 (it’s being gradually replaced by the LISA) but if your grandchild has one they can keep saving until November 2029. When a minimum deposit of 5% of the property value is put down on a house, the government matches this with a loan of 20%. Interest is not payable on the remaining 20% loan for five years. Money has to be paid in via their bank account.

3. With interest rates low, a bank or building society savings account for your grandchild isn’t the best place for maximum growth. However, there are good deals with Saffron Building Society and Halifax offering up to 4% on savings in the first year on £5 to £100 monthly with Saffron and £10 to £100 monthly with Halifax. Check out the latest Savings Best Buys.

4. A Junior Cash ISA (JISA) offers better rates than a savings account and standard ISAs - but with lower contributions at £4,128 a year. You can opt for a Stocks & Shares JISA where money is invested on the stock market with the aim of better returns. The child takes control of their JISA at 18. Check out Junior ISA Best Buys.

Money tip: If you’re six-year-old grandchild puts aside £5 of their money each week, wth parents and grandparents matching this amount, they would save £780 per year. Invested in shares over the past 12 years, today at age 18 they could have more than £15,000.

5. With NS&I Premium Bonds, the money is entered into a monthly prize draw. The more you put in up to a £50,000 limit, the more likely you are to win, but you may win nothing. It’s a safe place to store money but it will not maximise savings’ growth and relies on luck.

6. Contributing to your grandchild’s pension sets them up for life. Grandparents can pay in up to £2,880 and the government adds 20% to a maximum £3,600 yearly. Money can be accessed when your grandchild is 55.

7. You can give each grandchild up to £3,000 a year without tax consequences. There are additional exemptions for birthdays and Christmas and up to £2,500 for a grandchild’s wedding. You can also make gifts of up to £250 per person during the tax year as long as you haven’t used another exemption on the same person. Otherwise if inheritance tax is payable, non-exempted gifts made within seven years of your death are taxable.

Words Sarah Jagger

Thanks to Portafina, M&G, Aegon