Best Ways To Save And Invest For Your Grandchild’s Future

How to make smart investments for your grandchildren.

Updated: December 29, 2023
Matt Crabtree

Written By

Matt Crabtree

 

As the old saying goes, “the best time to plant a tree was 20 years ago, but the second-best time is now”. The same can be said for saving and investing for your grandchildren.

By starting now, you have the opportunity to set the foundation for a strong financial future for your loved ones and make a lasting impact on their lives. In this article, we'll be covering the best way to save for your grandchildren and how to make smart investments for them.

No matter if you are an experienced investor or a novice, you'll find valuable tips and advice that can have a significant impact on the financial well-being of your grandchildren.

Best Ways To Save And Invest For Your Grandchild's Future — Opening Junior ISAs

As a grandparent, one of the best ways you can help your grandkids out is by opening a Junior ISA (Individual Savings Account) for them.

Let's take a closer look at what Junior ISAs are, the differences between the two types available, and how easy it is to get started.

What Are Junior ISAs?

Junior ISAs are tax-free savings accounts that your grandchild can use until they're 18 years old. It's all theirs, and when they turn 18, they can take the money out in a lump sum without any restrictions.

Not only this, but the money saved in a Junior ISA grows tax-free, meaning more money for your grandkids when they need it.

Stocks & Shares Junior ISA Vs. Cash Junior ISA

There are two types of Junior ISAs to choose from — Stocks & Shares and Cash. The difference between the two is the type of investments they hold.

A Stocks & Shares Junior ISA invests the money in the stock market and other securities, which can lead to higher returns in the long run but also carries more risk.

Cash Junior ISAs, on the other hand, invests the money in low-risk savings accounts, which means lower returns but also less risk.

When deciding between a Stocks & Shares Junior ISA and a Cash Junior ISA, think about your grandchild's age, when they'll need the money, and your own risk tolerance. If your grandchild is young and won't need the money for a while, a Stocks & Shares Junior ISA might be a good option.

On the other hand, if they're close to 18 and will need the money soon, a Cash Junior ISA might be a better fit.

How to Open A Junior ISA & Who To Open It With

Before you can open a Junior ISA, you'll need to choose a provider. Fortunately, there's plenty of options to choose from, including banks, building societies, and investment companies.

Each provider has different features and benefits, so it's important to research and compare before making a decision.

One of the easiest ways to open a Junior ISA is through an online application process. You'll be pleased to know that lots of providers offer the option to open a Junior ISA account from the comfort of your own home. This means that you can get started on your investment journey in a convenient and efficient way.

When selecting a provider, it's important to consider several factors, including fees, types of investments, and customer service. Some providers charge fees for account management, investment management, or transactions, so make sure you're aware of any costs involved.

Also, look at the types of investments they offer to ensure they align with your investment goals and risk tolerance.

Furthermore, you always want to be sure that you can easily access support if you have any questions or concerns. Look for providers with good reputations for customer service, and consider checking online reviews and ratings to get an idea of their track record.

Finally, it's a good idea to compare interest rates too to ensure that you're getting the best deal possible for your investment.

Keep in mind that interest rates may fluctuate over time, so it's important to monitor your account regularly to ensure that you're still getting the best rate.

Best Ways To Save And Invest For Your Grandchild's Future — Opening A Savings Account

Traditional savings accounts in the UK are an excellent way to save money.

Banks and building societies offer these accounts so you can keep your hard-earned cash somewhere secure and still earn a little interest on top.

Think of it this way: you deposit your money into the account, and the bank pays you a small amount of interest in return, just for keeping your money safe with them.

The interest rate can vary, but it's generally lower than other investment options, making traditional savings accounts a great choice if you're looking for a low-risk place to stash your cash and watch it grow over time.

What's more is your money is protected! If something were to happen to the bank or building society where you have your savings account, your cash is insured by the Financial Services Compensation Scheme (FSCS) up to a limit of £85,000 per institution. So you can sleep easy knowing your savings are secure.

Pros

One of the most significant benefits of opening a savings account for your grandkids is that it can help them establish good financial habits from a young age. When they see their saved money grow over time, they'll understand the importance of saving and be more likely to continue this habit as they grow up.

Having a savings account also provides a sense of security for your grandkids. They'll know that they have a place to keep their money safely and that it's easily accessible when they need it.

Additionally, a savings account can also be a source of funding for their future expenses, such as college or a car.

Cons

Of course, there are also some drawbacks to keep in mind when creating a savings account for your grandkids.

One potential disadvantage is that the interest rate might not be very high, meaning that the money may not grow as quickly as you'd like. However, some savings accounts offer higher interest rates than others, so it's essential to do your research before choosing a provider.

Another possible con is that your grandkids may not be able to access their money as easily as they would with a checking account.

Savings accounts often have restrictions on the number of withdrawals you can make each month, so ensure you're aware of the terms and conditions before opening an account.

Best Ways To Save And Invest For Your Grandchild's Future — Start A Pension — Junior Self Invested Personal Pension (SIPP)

What Are SIPPs?

Junior SIPPs, or Junior Self-Invested Personal Pensions, are another effective means of securing your grandkids' financial future — investing in a variety of assets, such as stocks, bonds, and mutual funds for long term growth.

This kind of SIPP is specifically designed for children, allowing you to save for them in later life while potentially enjoying some tax benefits along the way.

The best part? You don't need a large sum of money to get started with a Junior SIPP. Even if you're on a tight budget, you can still take advantage of this opportunity to help secure your grandkids' future.

And as mentioned, the government provides tax relief on contributions made to a Junior SIPP, meaning you can maximise your grandkids' savings while also getting the most out of tax efficient benefits.

In short, Junior SIPPs are a valuable investment tool for those looking to save for their grandkids' future. So, why not consider one today and start securing your grandkids' financial future for years to come!

Where & How Do You Invest In SIPPs?

Investing in a Junior SIPP is an easier process than you might think! You can open a Junior SIPP account with a bank, investment firm, or most other financial institutions.

Depending on where you choose to invest, you'll need to open a Junior SIPP account yourself and select the assets you want to invest in. Then, you'll simply need to make contributions to the account on a regular basis.

Some financial institutions even offer the option to set up automatic contributions, so you don't have to worry about it.

Of course, it's always a good idea to consider the fees and charges associated with different Junior SIPP options, as well as the investment options available.

Additionally, if you're feeling a bit overwhelmed, you can always ask a financial advisor or professional for help.

How Are Junior SIPPs Different From Junior ISAs?

It's natural to compare Junior SIPPs and Junior ISAs given they're both british children's savings accounts where you don't have to pay income tax. However, there's still a few key differences between the two you should know about before coming to a decision.

One big difference is the types of asset you can have in each investment account. With a Junior SIPP, you have a lot more options — stocks, bonds, exchange traded funds, and more.

Junior ISAs, on the other hand, typically stick to savings accounts or bonds. So, if you're looking to diversify your investments, a this might be the better choice.

Another crucial factor to consider is the amount you can contribute each year. With Junior ISAs, there's a yearly cap of £9,000, whereas there's £2,880 annual limit for Junior SIPP contributions.

Fees can also be a big consideration. Junior SIPPs generally come with higher fees due to the wider range of investment options available, but it's important to weigh the long-term benefits against the extra costs.

And here's one more thing to keep in mind: with Junior SIPPs, you can't touch your money until you're 55. So, if you're looking for a more flexible option, a Junior ISA might be the way to go.

It's worth mentioning that you can still perceive this age restriction as a positive, as this ultimately helps ensure that the money saved is used for its intended purpose, such as for retirement or education expenses.

Best Ways To Save And Invest For Your Grandchild's Future — Premium Bonds

These are a kind of savings product issued by the UK government, offering the chance to win tax-free prizes.

For just £25, you can buy a bond and enter into a monthly prize draw, with over two million tax-free prizes up for grabs, ranging from £25 to the £1 million jackpot.

Furthermore, your money is 100% safe from any fraudulent activity as the bonds are backed by the UK government. This means that you can be confident that your savings are protected, even in the event of a financial downturn.

Why Choose Premium Bonds?

Flexibility

One of the main advantages of Premium Bonds is their flexibility. You can buy and sell bonds at any time, and they can be held in your name or in the name of a child or grandchild.

This makes them an excellent choice for grandparents who want to provide a special savings option for their grandchildren.

Entertainment

One of the most appealing aspects of Premium Bonds is the excitement of the monthly prize draws. Imagine the thrill of discovering that you or your grandchild has won a prize, and the joy that would bring to your family!

It's not just the excitement of potentially winning, but the peace of mind that comes with knowing that your money is being looked after.

Convenience

In addition to the prize draws, Premium Bonds also offer a convenient and accessible way to save. The bonds can be purchased online or over the phone, making it easy to manage your investments. You can also check if you have won a prize online or through the mobile app, which makes it easy to keep track of your savings.

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