When it comes to saving for a grandchild, there are a number of options to consider. You could open a Junior Cash ISA, Junior Investment ISA, savings account or premium bonds. But what’s the best option for you and your grandchild? In this piece, we will explore the various choices and help you make an informed decision about saving for your grandchildren. 

Perhaps you have just welcomed your first grandchild into the world. You may remember how busy you were when your children were born — for a first-time parent, savings and investments will be far from their biggest priority. As a grandparent, you’ll have more opportunities to think about your grandchild’s long term financial future so let’s guide you through some of your potential options.

Junior Cash ISA

Saving into a cash ISA for your grandchild will give you the peace of mind that their nest egg will grow tax-free (up to the annual limit). The maximum amount that you are able to save into a Junior Cash ISA each year is currently £9,000 for the tax year 22/23.  The interest rate for a Junior Cash ISA will be fixed, much like a savings account. The funds in a Junior Cash ISA can only be accessed when your grandchild reaches 18 years old.

Junior Investment ISA 

If you are looking to invest for your grandchild, then a Junior Investment ISA could be the right option for you. With a Junior Investment ISA, much like a Junior Cash ISA, the funds are accessible when the child turns 18 and are also subject to the same annual tax limits. What’s worth bearing in mind, over the long term, is that investments will often outperform cash, especially when interest rates are low and inflation is high (Inflation has been higher than interest rates for over a decade). 

Premium Bonds

Premium Bonds, historically, have been a popular option for grandchildren.  They are a type of savings bond offered by the government-owned National Savings and Investments (NS&I). With Premium Bonds, your money is entered into a monthly prize draw where you have the chance to win prizes up to £100,000. The interest rate on Premium Bonds is currently 0.35%. This means for every £100 you have invested, you will earn £0.35 in interest each year.  Premium Bonds can be accessed easily and are also tax-free. 

A Savings Account 

A long term savings account is also an option that many grandparents consider when starting to think about a grandchild’s future.  With this option, you are able to make regular or one-off payments into the account. The interest rate on savings accounts is often linked to the Bank of England Base Rate which, at the time of writing is 1%. This means that for every £100 you have saved, you will earn only £1 in return. Given the current inflationary environment, cash is looking less and less attractive as a long term investment vehicle. 

Returning to Junior ISAs, it’s worth bearing in mind that only the parent or guardian of the child can open one, so you may need to give your sleep-deprived child a friendly nudge. Over the long term, however, we think that they, and in time, your grandchild will thank you for it.