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Top tips on how to save for your grandchildren

Last updated 3rd April 2023

5 min read

Saving for grandchildren is a top priority for many of us.

We love to dote on them, buy them presents and teach them our worldly wisdom. We want our grandchildren to be the happiest they can be, and make sure they have a bright and stable future.

For some of us, that means looking to give them a bit of financial stability if we can.

With childcare, nursery and education costs being as high as they are, many parents struggle financially. It's understandable that grandparents want to help in any way they can.

Saving for grandchildren: things to consider

Of course, cash slipped into a birthday card or pocket is a welcome gift, and our grandkids are usually very appreciative.

But there are other ways to put your spare cash towards something that might offer a longer-lasting effect.

There are a few things to bear in mind first. While we might want to help as much as we can, many of us also have to consider our own finances first and make sure any aid is within our means. There are ways of doing both...

Don't wait until the last minute

Just like saving for a car or house renovation, the earlier you start to put money aside, the more financially stable you'll be.

If you think you'll be saving for a long time, it might be worth looking at the options outlined here.

Consider tax-efficient options

Giving lump sums can incur taxes, so look into your options before gifting money to your grandchildren.

Inheritance tax and other taxation issues can take the joy out of monetary gift giving, but understanding the rules makes life much easier.

Top tip:

Our article on 'What to consider before agreeing to give early inheritance' will give you some useful pointers.

Think about when your grandchild will need the money

The type of help you might want to give to very young grandchildren will probably be different from the help older grandchildren would appreciate.

Costs like school fees or extracurricular activities will be very different from university fees or a house deposit. And the way you might want to save for these will be different.

Whatever your aim, here are a few options you could consider that might help you put aside more than just a few pennies.

Remember, always seek financial advice before you make any decision.

5 ways to save for your grandchildren

1. Set up a children's savings account

If you'd like to set up a savings account in your grandchild's name, you'll need some legal documentation such as their birth certificate.

And, while a child's savings account is taxed the same way as an adult's, most children have an income below the personal allowance threshold (£12,570 for 2023-24[1]) – meaning the savings will be tax-free.

You can normally manage these accounts how you wish, putting in as much or as little as you like. But all banks and accounts will be different and have different terms and conditions – so make sure you do your research and choose the one that works best for you.

2. Pay into a junior ISA

A junior ISA is a great way to help your grandchildren in the future, as the money can't be accessed until their 18th birthday – and only they can access it.

Only a parent or guardian can set up a junior ISA for their children, but other members of the family can pay into the account. This makes them a great option for grandparents.

Depending on the tax year, there'll be a limit on how much you can pay into the account, but how you contribute is normally quite flexible.

In 2023-24, the allowance is £9,000[2]. (Those with Child Trust Funds may be ineligible or may have to transfer their CTF to a junior ISA[3]).

If you're looking to put in a little each month, you can just set up a direct debit. This makes it easier to work out exactly how much you'll be contributing for the year.

A junior ISA is also a great way to show children the benefits of ongoing investment.

Once they turn 18, their junior ISA will automatically roll into an adult ISA[4]. They'll then have total control of the money – so they may need a little advice from their wise grandparent on how to spend or keep saving it!

3. Set up a pension for your grandchild

This may seem like a far-off concept, especially if your grandchild is very young. But as we all know, time flies – and before they know it, they'll be planning for retirement.

You can start a self-invested personal pension (SIPP) from the moment a child is born and contribute to it each year.

Your grandchild will gain access to it when they turn 55 (although this is rising to age 58 in 2028)[5]. Over time, a small monthly amount can result in a sizeable sum for them, which could really help them out later in life.

4. Pay your grandchild's house deposit

If you're looking to financially help your grandchildren in one fell swoop, then paying a property deposit for a grandchild could be the way to go.

The bigger the deposit paid, the lower the mortgage payment your grandchild will pay.

So gifting money towards a house deposit should mean lower monthly repayments – which could be a huge help for them in the future.

5. Other ways to gift your grandchildren money

If you simply want to gift your grandchildren some money each year, you can give up to £3,000 without paying tax[6]. You can also give small tax-free cash gifts of up to £250 to as many people as you like during the tax year[7].

However you wish to help your grandchildren financially, they're sure to be grateful. Just remember to seek professional financial advice before you make any decisions.

[1] (2023), UK tax rates, thresholds and allowances for self-employed people and employers in 2023/4 and 2022/3( opens in a new tab)

[2] (2023), 2023/4 tax brackets revealed( opens in a new tab)

[3] (2022), Child trust funds( opens in a new tab)

[4] (2023), Junior Individual Savings Accounts (ISA)( opens in a new tab)

[5] (2023), Self-invested personal pensions (SIPPs)( opens in a new tab)

[6] (2023), How inheritance tax works – annual exemption( opens in a new tab)

[7] (2023), How inheritance tax works – small gift allowance( opens in a new tab)

The thoughts and opinions expressed in the page are those of the authors, intended to be informative, and do not necessarily reflect the official policy or position of SunLife. See our Terms of Use for more info.