Parents are often conscious of the difficulties their children face in getting onto the property [...]
Savings for grandchildren: where to start?Created by Margaret Stone in Age: Baby & Toddler, Age: On the way, Saving for grandchildren, Seasonal
The lovely news that the Duchess of Cambridge is pregnant combined with the moderately imminent arrival of the Three Wise Men bearing their gifts for the new born baby in Bethlehem, and has turned my thoughts inexorably to the kind of financial gifts grandparents might want to consider for the youngsters in their family.
For starters, I have to say that for very young children I don’t see much point in cash or near-cash presents. This rules out savings accounts and bonds offered by banks, building societies and National Savings. Interest rates are unattractive and inflation, medium-to-long term, will erode the value of any fixed capital investment you make on behalf of the newest and most junior members of the family.
It will be some 18 years into the future that today’s tiny scraps will be cashing in the investments you will be wanting to make today or in nine months or so time. Over such a long time horizon, shares are the way to make a tiny sparrow-sized nest egg into something of which an ostrich would be quite proud.
Investment trusts and unit trusts, where investors’ money is aggregated and spread over a wide range of shares to minimise risk, have been the traditional home for savvy grandparents wanting to invest long term on behalf of their children. And they still are today – but now they are wrapped in individual savings accounts (Isa) to make them a better deal still because the money invested accumulates tax free.
However, if your mind-set (and that of your children) is still on fixed capital savings which pay interest regularly (like a building society savings account), you can select of Junior Cash Isa instead. The best rates are currently much better than you and I are probably getting on our money at around 3-3.25%. And the money can be converted into a shares Junior Isa if there is a change of heart.
As a grandparent you won’t be able to open a Junior Isa yourself for your grandchild – only a parent or guardian can do that – but once it has been set up, you will be able to pay into that Isa thereafter. If parental cash is in short supply – as I expect it is after the baby’s birth – you can give them the money to open the Junior Isa without incurring the taxman’s wrath. One annual gift of £3,000 is exempt from inheritance tax plus any number of £250 gifts.
No-one should be put off by the fact that the maximum annual contribution to a Junior Isa is £3,600 (rising in line with the consumer price index from April). This is a maximum. Junior Isa deals usually start off for much, much less, typically lump sums £250-£300 and regular savings schemes for as little as £10, £30 or £50 a month.
Many financial services companies including household names such as Legal & General, Prudential, unit trust groups such as Fidelity and Invesco Perpetual, investment trust companies like Baillie Gifford and F&C offer Junior Isas. As indeed do virtually all banks and building societies, although primarily these are Junior Cash Isas. Web –based comparison sites such as www.juniorisas.org are useful guides for sifting out some of the better offerings.
Junior Isas are good news, but there’s a couple of modest caveats. The money is genuinely locked in until the child reaches 18, and then it’s his or hers to do exactly as they want – which may not be what you or his or her parents want!
If you want the money you’re gifting to the grandchildren to be used to help with other things, school trips, it might be worth considering children’s savings plans (offered by much the same financial services groups) where the money, although designated for your grandchild, can be held in your name until needed.
By Margaret Stone