Q: OUR first grandchild is due next month and we would like to invest some

money for him. We don’t want anything too risky but don’t want to leave it in a saving account either as the returns are so bad at the moment. Ideally we would like him or her to be able to access the money when they are 18. Can you help?

 

A: WHAT a lucky child to have such generous grandparents. While you don’t say

how much you intend to invest, you are absolutely right not to keep it in a saving account, although children’s accounts do tend to offer better rates. The top

account, according to statisticians Moneyfacts, Santander 123 Mini Current Account is currently paying 3 per cent on balances between £1,500 and £2,000, but your grandchild will have access to the cash from age 13. You say you are willing to take some risk with the money, but for the record, the top paying cash Junior Isas, which let you invest up to £9,000 in the 2021/22 tax year to

April 5, currently pay 2.5 per cent tax free and are on offer from Bath,

Loughborough and Dudley Building Societies. A Junior Isa lets the

money invested grow and be taken tax free and cannot be touched until the child turns 18, although they will have control of the money

from 16.

Remember though, your grandchild is unlikely to be paying tax for some time, so the tax free element of a Junior Isa won’t necessarily make up for the lower rates.

If you want to take more risk you could invest in a stocks and shares

Junior Isa, or split the money between the two types. If you want to invest in the stock market, you can either choose the shares or funds yourself and use a low cost investment platform such as Vanguard or AJ Bell to trade. Alternatively

companies such as e>vestor or nutmeg have pre-designed portfolios based on the amount of risk you are willing to take — low, medium or high. If you are looking

to invest a significant amount of money then it may be worth

contacting a more traditional independent investment adviser to guide your investment decisions.

Another alternative is to invest the money into a stakeholder pension

for your grandchild. While they won’t be able to get their

hands on it until they turn 55 under current rules, the government will give basic rate tax relief on any contributions. This effectively means every £100 you want

to invest actually costs you £80 as the state gives you £20. The maximum

you can invest is £3,600 and Sarah Coles, a personal finance analyst

at independent adviser Hargreaves Lansdowne suggests this could be worth almost £56,000 assuming a 55 per cent growth over the period.

She says: “Putting money away at a very early stage can make

a profound difference to their retirement income, because it has decades to take advantage of compound growth (which is essentially

where you get growth on your growth).”

Rosanna Spero has been writing about money, property and
small businesses for more than 30 years. She has worked for a
range of magazines and newspapers, with much of her working
life on the Money Mail section of the Daily Mail. She has also
written a number of books on the subject. Email her with your
questions at rspero@thejc.com