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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Should you go for a Junior ISA, a child’s pension, a bare trust or buy Premium Bonds?

Grandparents looking to set money aside for their grandchildren have a wealth of options available to them. From Junior ISAs to children’s pensions and even Premium Bonds, there are a number of ways to help young relatives to start saving.

Among the most popular are Junior ISAs, which were introduced in 2011 to replace Child Trust Funds and provide a tax-free place to save for young people.

Parents and grandparents can save up to £4,260 a year into these wrappers, choosing either to invest the money or keep it in cash. The benefit of the latter is that young people often have access to better interest rates – the current best rate is 3.5% – but investing the money can reap greater rewards over the long-term based on historical performance trends.



Only a parent or legal guardian can open a Junior ISA for a child but, once the account is open, anyone can make contributions.

If you invested £4,260 each year from when your grandchild was born and the money grew at 6% a year, they would have nearly £140,000 by their eighteenth birthday.

Brian Dennehy, managing director at Fund Expert, says: ‘It’s great to get children into the savings habit early and it can be good fun for grandparents and children to choose funds and watch their money grow together.’

For grandparents who want to save more, a bare trust has no maximum investment limit. These are typically set up through a financial adviser and grandparents and parents are named as trustees of the account and run its investments, with the child getting access to the funds when they reach 18.

This is the downside of both the bare trust and Junior Isa, however: at age 18 the child will take over the account and be able to access the money to do with it what they want.

Tom Stephenson, adviser at Courtiers Wealth Management, says at this point a financial adviser would normally discuss with the child their options and what their needs and objectives are. ‘We usually find they want to keep it invested for the long term,’ he reveals.

But this is not always the case and many grandparents may worry their grandchild may be tempted to use the money for something frivolous rather than keep it invested or use it as they had originally intended.



While most people won’t start to think about pensions until they are in full-time work, setting one up for your grandchild can be a good option for grandparents who would prefer that the money isn’t accessed until much later.

You can save up to £2,880 a year into a children’s pension, which will receive a 20% top up to £3,600 from the Government.

Stephenson adds: ‘Investing into a pension to ensure a better retirement is a comforting prospect but the downside is that it is likely grandparents won’t get to see their grandchildren enjoy the investment.’


Regardless of the investment vehicle, grandparents choosing funds with which to grow young people’s money can afford to take on more risk than they might for themselves.

Young savers have a long time horizon in which to ride out any ups and downs in the stock market so can choose racier funds where the potential gains could be greater.

Dennehy likes Liontrust UK Smaller Companies (GB00B57TMD12), a fund which focuses on smaller British businesses such as recruitment firm Robert Walters (RWA)
and engineering company Renishaw (RSW).

The fund has returned an impressive 141.1% over the past five years and, if you had invested £4,260 in it for the past 18 years, it would have grown to an incredible £409,979.

Dennehy also likes Schroder Recovery (GB00B3VVG600), a fund which looks for out-of-favour companies that the managers believe are on the brink of a turnaround. Current investments include banks Barclays (BARC), Royal Bank of Scotland (RBS) and HSBC (HSBA) as well as mining firm South32 (S32). The fund has returned 60.3% over the past five years.

Mike Deverell, partner at adviser firm Equilibrium, says grandparents who would prefer not to actively manage an investment portfolio should simply choose a low-cost global tracker fund such as DB-X Trackers MSCI World Index ETF (XWLD).

He says: ‘If you are investing for the long-term then a diversified global equity fund is a good choice, especially if you are investing regularly. The time horizon of a Junior ISA means you can ride out the ups and downs.’

For those who don’t want to invest, Premium Bonds are an alternative option. Grandparents can buy Premiums Bonds for a grandchild and will look after them until their 16th birthday, receiving notifications for any prizes won. You can invest between £100 and £50,000 and prizes in the monthly draw range from £25 to £1m.

Savers have a 24,500 to 1 chance of winning for each £1 they have invested. The chance of scooping the £1m prize jackpot is almost 1 in 36bn – significantly worse than the odds of winning the National Lottery, which are 1 in 14m – but NS&I estimates the annual interest achieved on Premium Bonds is 1.4%.

Failure to win a large prize and only collect a return equal to 1.4% would ultimately mean you are getting less than the rate of inflation with Premium Bonds. (HB)

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