What is the best way for me to help my granddaughter financially?

Question

Please can you help me start a savings account for my granddaughter. I am a widow and she lives with me. She is 18 this month and I want to give her £1,000 for her birthday and then give her a little bit each month.

She is currently at college and can’t work due to health problems, but she hopes to get a job soon. What is the best account for her to open?

LC/Tewkesbury

Answer

As an adult, your granddaughter will need to open the account you choose herself, or you will need to open an account in your name that you earmark for her.

The best account will depend on the access you want her to have to the money and whether the payment you give will be available every month.

If she has never owned a property before, a Help to Buy Isa could be worth considering.
The best Help to Buy Isas pay up to 4% tax free/AER and if she does use the proceeds as a deposit for her first home (to live in as opposed to buy to let), the government will add a 25% bonus to the pot, up to a maximum of £3,000.

 

 

However, if you choose one of the best paying accounts, she won’t be able to fully utilise her cash Isa allowance (the Help to Buy Isa is a cash Isa and you are only allowed to subscribe to one cash Isa each tax year.)

As mentioned in the previous answer, you can use a ‘portfolio Isa’ facility to get around this. Nationwide, NatWest and Aldermore Bank have the best paying Help to Buy Isas with the portfolio Isa facility, paying 2% tax free/AER.

Help to Buy Isas all offer easy-access accounts, so if you want to restrict your granddaughter’s ability to access the funds, a regular savings account may be more appropriate, as many will not allow access to the funds for 12 months without a penalty. The best paying accounts (offering rates of up to 5% or 6%) are only available to current account customers with the same provider.

 

If she doesn’t have or doesn’t want to open a current account with one of these providers, the best regular savings account that is available to all is with Leeds Building Society and is paying a rate of 3.05% gross/AER. This rate includes an annual bonus of 1.80%, which is only paid if no monthly payments are missed and no more than one withdrawal is made in
that year.

As regular savings accounts will be limited to £200 a month, you’ll have to drip-feed the £1,000 into it rather than putting it in as a lump sum.

Anna Bowes
Anna Bowes is a founder and director at Savings Champion