Investing for your grandchildren’s future 

Why invest for your grandchildren 

You want the best for your grandchildren, that’s natural, and you recognise that financial security is key to this. It gives them the chance to thrive despite rising costs for education, housing, and significant life milestones like weddings.  

 With a child’s investment account, like a Junior ISA, you can lay a strong foundation for their future success. While the stock market may seem risky, investments have historically offered better returns than cash savings. And the sooner you start, the greater those potential returns can be. 

Secure their financial future

Setting aside funds to invest for your grandchildren can offer them financial security. With rising costs for first-time home buyers, or paying expenses for higher education, you can give your grandchildren a safety net for the future. Rather than relying on student loans or incurring debt, contributions from grandparents can alleviate these financial burdens.  

Benefit from compound growth

While gifting money or leaving an inheritance is common, investing for your grandchildren can offer greater long-term benefits. Unlike cash savings, investments have the potential to grow significantly over time through the magic of compounding. This is where returns are reinvested, allowing growth on both the original amount and the earnings.  

Make the most of tax benefits

Usually, any investment returns, such as income and gains, made in your grandchild’s name won’t count towards your own tax liability.  

For example, anything you pay into a Junior ISA for your grandchild will count towards their annual ISA allowance, not yours. And any tax-efficient investment growth belongs to them, helping you avoid the tax implications that often come with direct gifts.  

Leave a legacy

Investing for your grandchildren offers many financial benefits but it also allows you to pass on something arguably more valuable: a legacy of financial education. Your shrewd decisions now can underpin your grandchildren’s knowledge and values around managing their money and growing wealth.  

The gift of financial education is something they can pass on to their children - and grandchildren in turn. So by investing for your grandchildren, you may be able to guide generational financial security. 

How to invest money for your grandchildren

There are many options to help your grandchildren start off strong financially. Some of the most effective strategies include investing through a Junior ISA (JISA), making regular contributions to a child's pension or paying into a children’s savings account - or a combination of these. The right choice will depend on your financial circumstances, goals, and broader gifting plan.  

Pay into a children’s savings account

A children’s savings account with a bank or building society could be a good option, but due to inflation, interest rates may fall behind. 

Striking a balance between savings and investments is often a good approach. Cash savings can help you support your grandchild in the shorter term, while investment accounts can set them up for their adult life. 

Invest in a Junior ISA

There are two types of Junior ISAs (JISAs): Cash JISAs and Stocks and Shares JISAs. You can contribute to both types of JISA each tax year, but the total invested can’t exceed the £9,000 annual allowance. Both are tax-free, long-term savings accounts for children but how they work differs slightly.  

A Cash JISA is low risk, but its growth is limited to the interest rate offered. With Stocks and Shares JISAs, the money you pay in is invested in the stock market. Though there's potential for higher returns over the long term, investment values can fluctuate, making Stocks and Shares JISAs riskier.  

Like adult ISAs, JISAs come with generous tax benefits. For Cash JISAs, there’s no tax to pay on the interest earned, while in a Stocks and Shares JISA, no tax is payable on capital growth or dividends.   

So your grandchild keeps any interest or profits earned.  

Contribute to a Junior SIPP

A Junior SIPP is a children’s pension account. It lets parents save for their child's retirement with tax benefits – there’s a £720 tax relief bonus available every tax year. This means if you pay in the maximum £2,880, the government tops it up to £3,600.  

Contributing to a Junior SIPP means giving your grandchild a head-start on their retirement savings. Remembering that starting early means investments have more time to benefit from compound growth.  

It’s important to point out that the money paid into a Junior SIPP can only be accessed by your grandchild once they reach the minimum pension age. This is currently 55, increasing to 57 from 2028, and will continue to increase every few years.  

Top up your own ISA

Another way to save for your grandchildren is by opening an ISA in your own name and setting aside money for them. You’ll control the account yourself, which gives you flexibility in deciding when to pass the money on.  

You could gift some of your savings before they turn 18 or wait until they're older. Keep in mind, though, contributions to your ISA will count toward your own annual allowance, limiting how much you can save for yourself. 

Can you open an ISA for your grandchild?

While you can pay into Junior ISAs for your grandchildren, only parents or legal guardians can open them and will be the registered contact who manages the account. As with other ISAs, whoever opens the account needs to be 18 or older and a UK resident (or a Crown employee serving overseas or married to one). Likewise, the child must also be a UK resident when the JISA is opened. 

Cash JISAs are available with many banks and building societies, whereas Stocks and Shares JISAs can be opened with investment platforms, like ii. To open a JISA with Interactive Investor, the registered contact first needs to have an ii Trading Account, ISA, or SIPP.  

Contributing to a JISA 

Although you can't typically open a Junior ISA for your grandchild (unless you have parental responsibility), you can contribute once the account is open. In fact, anyone can pay into a JISA, up to the £9,000 annual allowance. Contributions are considered gifts to the child and can't be returned, and your payments into a JISA won’t affect your personal ISA allowance.

Your payments can usually be made by bank transfer or cheque. And registered contacts will have the additional option of setting up a direct debit for regular contributions. While your grandchild must be a UK resident to open the Junior ISA, payments can still be made even if they move abroad.  

Managing a JISA  

The registered contact who opens the account will manage the investments until your grandchild turns 18. After that, the JISA will convert into an adult ISA and your grandchild has the option to start managing their investments or withdraw the funds available.  

If the child is unable to take over management of the account, for example due to disability, your provider may offer other options. For example, at ii we can arrange Third Party Authority and Power of Attorney access to the account. 

What to consider before investing for your grandchild

Make sure your own needs are covered  

When thinking about how much to set aside for your grandchildren, it's essential to keep your own needs in mind. While it's wonderful to want to help, you shouldn't stretch yourself too thin.  

If you give too much and end up struggling to cover your own expenses, those good intentions could end up causing more stress. It's important to make sure you're financially secure and have enough for your own future before contributing what you’re willing to give. 

When will your grandchildren need the money?  

Different savings and investment accounts are available, but the best option for you will need to align with what you can give and when your grandchild needs to access the money.  

Savings in a Junior ISA can’t be withdrawn until the child turns 18 and a Junior SIPP can’t be accessed until they’re aged 55 (57 from 2028). So if your grandchild might need financial support earlier, you should carefully consider whether these accounts are the right investment choice for you.  

Gifting throughout your life 

Investing is a great way to help secure your grandchild’s future, but you may also want to give occasional gifts throughout your life — whether it's for a graduation, a wedding, or even helping with a house.  

You can give up to £3,000 each year in gifts without any inheritance tax (IHT) implications. Plus, any gifts given more than seven years before death are completely free from IHT.