Your grandchildren will have some amazing opportunities, but may need your financial support to seize them
The day when your grandchild wants to buy a home or go to university might seem a long way off, but it's getting closer all the time.
"All young people need access to capital, so starting a savings account for your grandchild as soon as you can is a great idea and will really give them a helping hand in life," says the Open University's Dr Rajiv Prabhakar.
Your grandchild might be small now - but soon enough they'll be ready to face the world.
Savings options
Many banks and building societies offer tailored savings accounts for children. Like adults, children have a personal tax allowance of £9,440 for the tax year 2013/14. This means they can earn that amount including interest without paying any tax.
As a grandparent, you can contribute as much money as you like on your grandchild's behalf and, unlike the child's parents or step parents, interest earned will not be treated as your income for tax purposes, so this could be a great way to help your family. If your grandchild has a Child Trust Fund you can continue to add to it. The annual limit for the Child Trust Fund has increased to £3,720 from 6 April 2013. The reason for the limit increase was to bring the Child Trust Fund in line with the new Junior ISA which was launched on 1 November 2011 for children who were not eligible for the Child Trust Fund.
Of course, there is a range of other savings and investment vehicles that you could use to build up your financial resources and so be in a better position to support your grandchildren. Regular savings accounts, for example, are often considered to give a better rate of interest than many other accounts and there are other options, such as investment funds.
Reasons to save
But will your grandchildren really need your financial help? The fact is that there's no way of knowing how much things will cost in the future; over recent years, the cost of some things have risen much faster than inflation, while other things have got cheaper. However, you only need to look at how prices have changed to realise that grandparents can have an important part to play in a child's future.
Higher education is a topical place to start because of the debate over tuition fees. Getting a degree can open all sorts of doors, but from 2012/13 universities can charge up to £9,000 a year in tuition fees alone. This is a sharp increase from the £3,290 price tag of 2010 and an even sharper one from the days when most students received a grant. This is an obvious area where financial support from grandparents can make a real difference to a child's life.
We all want our grandchildren to find romance and happiness and, while it's easy to cut the cost of a wedding by having a cheaper reception and honeymoon, will you really want to cut back during such a special occasion?
Note: At the current time HSBC does not offer a Junior ISA.
The value of investments (and any income received from them) can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets. Stock market investments normally need a commitment of at least five years. Any money held within a Child Trust Fund or a Junior ISA may not be accessed until the child turns 18. Please be aware that the value of tax benefits will depend on your individual circumstances, and tax rules may change in the future.
