Why more grandparents are opening children’s savings accounts in their own name – and the tax twist behind it

First it was Premium Bonds and envelopes of birthday money. Now, a quiet shift is happening in families up and down the country: grandparents are opening “children’s” savings pots, but keeping the accounts in their own name.

On paper, it looks odd. The money is for the grandchild, the label on the spreadsheet says “uni fund” or “first car”, yet the bank sees an ordinary adult saver. Behind that choice sits a tangle of tax rules, benefit thresholds and family politics that most people only half-hear about on the radio. Once you dig in, the logic becomes clearer – and the trade‑offs sharper.

The classic route – and why some families are dodging it

Traditionally, money for children has gone into:

• Junior ISAs
• Children’s savings accounts
• Children’s pensions (for the especially keen planners)

These sit in the child’s name. The upside is simple: tax‑free (in the case of ISAs), clearly ring‑fenced, and legally the child’s when they reach adulthood. The snag is in those last six words.

At 18, a Junior ISA becomes an adult ISA that the young person controls outright. They can spend it on tuition fees, driving lessons or a six‑month backpacking trip with very expensive trainers. Parents and grandparents who spent years drip‑feeding savings into the pot suddenly realise they no longer have any say in how it’s used.

There is also a little‑known “£100 rule” for money parents give to children. If the interest on money a parent gifts exceeds £100 a year, HMRC can tax that interest as if it belonged to the parent. Grandparents are not caught by that rule, but many families simply bundle every gift together in the same children’s account, blurring who gave what.

The quiet workaround: adult accounts for kids’ cash

So some grandparents are taking a different path. Instead of paying birthday cheques into a Junior ISA or a children’s saver, they open an ordinary savings account, or fixed‑rate bond, in their own name and label it mentally – or on the banking app – as “for the grandchildren”.

It looks like this in practice:

• A grandparent opens a high‑interest easy‑access or fixed‑term account.
• They keep the account legally theirs but treat the balance as earmarked for a named grandchild (or split between several).
• They make regular standing orders or ad‑hoc top‑ups from their own current account.
• They plan to transfer or gift the money later – often at a carefully chosen moment.

The money is still for the child, but the grandparent keeps the steering wheel for longer – and, in many cases, keeps more of the interest out of the taxman’s reach.

For grandparents on modest incomes, the Personal Savings Allowance and the starting rate for savings can mean a decent chunk of interest is effectively tax‑free, especially if their other taxable income is low. For the child, who often has little or no income, the generosity is felt in the final gift, not the structure behind it.

The tax twist hiding in the small print

The appeal of “grandparent‑held” savings lies in how the tax rules intersect.

How the allowances line up

In broad terms:

• Parents giving to children
  If a parent gifts money to a child and the interest earned on that money is more than £100 in a tax year, that interest may be taxed as the parent’s income. This can drag more of their overall interest above the Personal Savings Allowance.

• Grandparents giving to grandchildren
  The £100 rule does not apply. Interest on money given by grandparents and held in the child’s own name is treated as the child’s income for tax, and most children do not come close to using their tax‑free allowances.

• Grandparents saving “on behalf of” but in their own name
  All the interest formally belongs to the grandparent. It sits against their Personal Savings Allowance and any starting rate for savings they can use. For a retired grandparent with modest pension income, that can still be very efficient.

That last point is the twist. A grandparent who is a basic‑rate taxpayer may be able to earn up to £1,000 of interest a year tax‑free (less if their other income is higher), plus potentially up to £5,000 under the starting rate for savings, depending on circumstances. If their own savings are otherwise small, “parking” grandchild money in their name might not trigger extra tax at all.

But there is another ledger: inheritance tax

There is a longer shadow, though, and it falls under inheritance tax (IHT). Money that stays in the grandparent’s name:

• Remains part of their estate for IHT purposes until it is genuinely given away.
• May attract IHT if their estate eventually exceeds the nil‑rate band and any residence allowances.

Gifts made during life can gradually move money out of the estate, but there are rules:

• Most straightforward gifts are Potentially Exempt Transfers. Survive seven years and they usually fall out of the IHT net.
• Regular gifts from income that do not affect the giver’s standard of living can be immediately exempt, if properly structured.

So the “tax clever” move on income tax can, in some families, leave more of the pot exposed to inheritance tax if grandparents die before they have actually transferred the savings. The right answer depends less on theory and more on the real shape of someone’s assets, health and intentions.

Control, timing and family expectations

You can feel the non‑tax reasons for this trend in living rooms rather than spreadsheets. Many grandparents voice some blend of pride, worry and realism: they want to help, but they have seen 18‑year‑olds make choices that older versions of themselves would regret.

Keeping the account in their own name lets them:

• Decide when to hand over the money – 18, 21, graduation, house deposit time.
• Attach conditions informally – “this is for training, a deposit, or clearing a sensible debt”.
• Adjust the gift if family circumstances change, for example if one grandchild receives other significant help and another does not.
• Step in if their own care costs or emergencies mean they cannot be as generous as planned.

In a world of rising rents, long degrees and unstable jobs, many older relatives quietly prefer a flexible promise over a fixed account they can no longer touch.

The flip side is trust. If the money legally belongs to the grandparent, there is no binding guarantee the child will ever see it. Families often bridge that gap with written notes, wills and open conversations, but from a legal standpoint the grandchild’s “right” is shaky until the transfer actually happens.

Simple ways to ring‑fence without losing your grip

Between “everything in a Junior ISA at 18” and “everything in grandma’s name forever”, there is some middle ground.

A few practical patterns families use:

• Mixed strategy
  Put a base amount into a Junior ISA each year, then keep any larger lump sums in a grandparent’s account earmarked for later life events.

• Clear labelling and records
  Use account nicknames, a basic spreadsheet or even a notebook to track which sums are intended for which child, who gave what, and when. This helps with fairness, wills and family understanding.

• Gradual gifting
  Start moving slices of the money into the child’s own name once they demonstrate good habits – for example, topping up their own savings or budgeting well at university.

• Wills and letters of wishes
  If a grandparent dies before handing money over, a clear will and a simple letter of wishes can greatly reduce disputes and help executors honour the original intent.

None of this replaces professional advice, especially where larger sums or multiple grandchildren are involved. But small steps like writing down intentions and keeping documents together in one place make a real difference when the time comes.

Quick comparison: where the money “sits”

Option	Who owns it now	Main upsides
Junior ISA	Child	Tax‑free growth; legally protected for the child.
Child savings account	Child	Simple, familiar, high transparency.
Grandparent account “for child”	Grandparent	More control, flexible timing, potentially efficient income tax use.

Making the numbers serve the relationship

At its core, this is not a story about loopholes. It is a story about grandparents trying to translate love, time and worry into something useful for children growing up in a tighter, costlier world.

The tax twist matters, but it is not the only lens. A structure that saves a bit of income tax but creates tension or confusion later may not feel like a win. Equally, a perfectly pure Junior ISA might not suit a family where big sums arrive late in a child’s teens, or where there is real concern about sudden access at 18.

For most families, the sweet spot lies in three quiet habits:

• Understanding the basic rules – especially who is taxed on what.
• Being deliberate about who owns which pot, and why.
• Talking early enough that assumptions do not harden into surprises.

When you do that, a “grandma account” on a banking app stops being a quirk and becomes part of a wider plan – one that treats tax rules as tools, not masters.

FAQ:

• Is it legal to save for a grandchild in an account in my own name?
  Yes. As long as the account is opened honestly in your own name and you pay any tax due on the interest, you are free to intend the money for a grandchild and gift it later.
• Does the £100 rule apply to grandparents?
  No. The rule about taxing interest over £100 as the giver’s income only applies to parents and step‑parents. Grandparents, aunts and uncles are not caught by it when saving in the child’s own name.
• Will I pay more income tax if I keep the savings in my name?
  It depends on your other income and how much interest you earn in total. If you stay within your Personal Savings Allowance and any starting rate for savings, you may pay no extra tax at all. Above that, interest is taxable at your marginal rate.
• What about inheritance tax on money I am “holding” for grandchildren?
  While the money stays in your name, it normally counts as part of your estate for inheritance tax. Gifts you make during your lifetime can reduce that, but you need to consider the seven‑year rule and other exemptions.
• Should I get financial advice before choosing a route?
  If you are dealing with more than small, casual gifts, or if your estate might approach the inheritance tax thresholds, specialist advice is sensible. An adviser or tax professional can look at your full picture, not just the children’s savings in isolation.