How best to save for your grandchild's future
Having grandchildren is such a gift, and it creates the ideal opportunity to go into those lovely children's shops once again and spoil someone very special to you. But when the toy box is full and the wardrobe is creaking, have you thought about what your grandchild may appreciate when they are that little bit older? Putting a few pounds away at Birthdays and Christmas will really add up and by the time they are 18 you may have provided them with a travelling fund, a deposit for a car, or even their University Education!
Here in our 'investing in their future' area we have got together with our friends at MyEggNest.com to share some really good tips on how to make saving for your grandchild a practical and viable option, whether you are doing it yourself or giving their parents some help and advice. When it comes to money, it is always a good idea to ask the child's parents what they already have in place and what you can do to contribute.
The best place to start is to put money aside in your grandchildren's CHILD TRUST FUND (CTF). The Child Trust Fund is a long-term savings and investment plan set up by the goverment to encourage parents to save for their children's future. All children over 5 years old will have received an initial £250 in vouchers from the government to open their CTF accounts, with a further £250 when they reach 7 years of age. The CTF can be topped up by anyone, including family members, up to £1,200 each year.
To find out more about CTFs go to MyEggNest.com where there is some really comprehensive and easy to read information on CTF options. The great thing about the CTF is that your grandchild's savings are free from income tax or capital gains tax so rest assured the tax man can't touch them.
If your grandchild is over the age where they can qualify for the Child Trust Fund, or for whatever reason they may not be entitled to it, there are alternative savings products out in the market place that are just as tax efficient just without the free £250 voucher. One such account is the TAX EXEMPT SAVING PLANS (TESPs). You can find one at most building societies. TESPs offer parents and grandparents a simple way to save up to £25 for each family member per month. Similarly to the CTF, it is free from income tax and capital gains tax.
You can also opt to set up a trust fund for them in the form of a UNIT TRUST FOR CHILDREN. This allows you as the trustee to set up the account in your name for the benefit of the child. As children under 18, are not legally able to hold shares, but you can save on their behalf and identify your grandchild as the beneficiary.
It is definitely worth thinking about starting a savings account yourself for your grandchildren, it also makes sense tax-wise.
For tax purposes, the government views a child as an independent person who is entitled to a personal allowance of £6,035 (2008/9) just like any adult. The vast majority of children do not earn above the personal allowance so therefore their savings are tax-free (make sure their parents fill in a R85). To prevent parents from simply dumping their savings into your grandchild's account, the taxman limits the amount of tax-free interest their gifts can earn. However.... and this is the nifty bit for grandparents, the limit does not apply if the gift comes from anyone but the parents/guardians. This means that if you want to deposit a "gift" into your grandchild's account, it does not affect your or your grandchild's taxable allowances. As long as the total amount of interest falls within the £6,035 allowance.
Another option for a tax free long-term investment is CHILDREN'S BONUS BONDS from National Savings and Investments. They can be opened by a Grandparent or adult for a child under the age of 16. You simply invest a lump sum to open the account and interest is added every year, along with a bonus every five years until the child reaches 21. You can add more installments into the account as well, up to £3,000 per issue for each child. The bond is owned by the child, but controlled by their parents till their 16th birthday, when they can control the bond themselves.
There are other children's saving account options, with as a general guide the more restrictive the account the higher rates of interest it will attract. MyEggNest.com has a good overview of these products.
Although it may seem a long way off, you can set up a STAKEHOLDER PENSION for your grandchildren and invest up to £3,600 gross each tax year. This is a long term investment and there may be a worry that pensions rules may change.
We recommend that you take a look at all of the savings options available to you at MyEggNest.com , where not only do they list the options, but also provide a really good explanation of the individual products. These range from the straight-forward building society account to children's stakeholder pensions.
The MyEggNest site also has a great section that gives you some ideas of how best to teach your grandchild the value of money. We particularly like the suggestion of introducing the 'save some, share some and then spend some' philosophy. This can take the form of the following:
- The Save Piggybank (PB). The Save PB is long-term savings for large ticket items like an Xbox, a bicycle or snooker table. It may take your grandchildren a long time to save enough to purchase these things, but it will teach them a little patience, perseverance and self-discipline.
- The Spend Piggybank. The Spend PB will allow them to spend on anything they like on the lower-priced, short-term purchases, such as the latest CD. If they want a pair of jeans or a new football, they can buy them right now.
- The Share Piggybank. Encouraging your grandchildren to make some charitable contributions can help foster compassion for others who have less and gratitude for what they themselves have. Every year Children In Need have shown that children love to get involved in charitable events and it demonstrates that relatively young children can learn compassion and reach out to others. However, this PB could also be used to take friends for a popcorn at the local cinema or buy their friends goodies at the ice cream van.
It's really worth thinking about saving for their future now, as the more time goes by, the more interest you lose (in more ways than one!) Take a look at MyEggNest for some more inspiration - saving really can be as easy at it looks, and there is a helping hand every step of the way!
As with all of our featured articles, you can send us your topic suggestions for this area at letusknow@grannynet.co.uk!
By Verity Gill & MyEggNest.com
- DO discuss savings plans with your grandchildren's parents
- DO try to help your grandchild's parents to save, through advice or encouragement
- DO set up a separate savings account for your grandchild to take advantage of the tax benefits
- DO teach your grandchild the value of money by making it fun!
