How to Start Investing for Your Grandchildren

Picture this: your grandchild turns 18 and discovers a quietly built portfolio in their name — one you’ve been steadily growing since they were in nappies. It’s more than just a pot of money. It’s a stepping stone: a way to support their university plans, first home, or ambitions they haven’t even imagined yet.

For many grandparents, this kind of future-focused gift feels right. But knowing how to begin can be daunting. Is a Junior ISA the best route? Would a trust be better? And what happens if they spend it all the moment they come of age?

These are reasonable concerns. But with a little planning and the right structure, investing for your grandchildren can be both simple and rewarding.

Why Investing is More Powerful than Saving

Savings accounts are safe but slow. While they offer stability, they rarely outpace inflation. Investing, by contrast, gives your money the potential to grow meaningfully over time.

Let’s compare.

• A decent cash account might offer 3% interest annually.
  
• A well-diversified investment portfolio has historically delivered 6–8% per year, after inflation.

At first glance, that gap might seem small. But over 18 years, the difference is striking. Putting away £50 a month in savings could leave you with roughly £13,000. Could you invest the same amount each month in a long-term fund? Closer to £20,000–£25,000 or more, depending on market performance.

That said, investments fluctuate. Values rise and fall, especially in the short term. But when your timeline spans a decade or two, as it often does when saving for a child — those bumps tend to smooth out. That’s why long-term investing is especially well suited to grandparents: time becomes a powerful ally.

Define your Intention Before Choosing a Vehicle

Before picking an account or investment type, it helps to be clear on your objective. Ask yourself:

• Is this money for a specific milestone, such as university or a house deposit?
  
• Are you hoping to reduce inheritance tax by gifting during your lifetime?
  
• Would you like to teach financial responsibility alongside the money itself?

Your answer will shape everything else. A newborn offers an 18-year window for growth, while a teenager might warrant a steadier, more conservative approach. And if you’re unsure about handing over control at age 18, you’ll need to choose an account that allows for more oversight.

Which Savings and Investment Options Actually Work?

There’s no single “best” solution. But here are four widely used options that offer strong advantages for grandparents looking to invest.

1. Junior ISA (JISA)

A Junior ISA is one of the most straightforward and tax-efficient ways to set aside money for a child.

• Up to £9,000 can be contributed each tax year.
  
• Growth and income are entirely tax-free.
  
• Only parents or guardians can open the account, but anyone can pay into it.
  
• The child takes full control at 18.

JISAs are especially effective when the goal is long-term growth with minimal tax concerns and when you’re comfortable with your grandchild accessing the full amount as a young adult.

Best for: families seeking a straightforward, low-maintenance way to grow a tax-efficient fund over time, a Junior ISA may be worth exploring.

2. Bare Trust

A bare trust allows you to give money to a grandchild while keeping control of how it’s invested until they reach maturity.

• The child owns the money legally, but you act as trustee
  
• You can choose and manage the investments
  
• At age 18 (16 in Scotland), they gain full access
  
• Income tax may apply depending on contribution levels and who the donor is

These trusts are highly flexible and allow for tailored investment choices ideal for larger sums or when more control is preferred.

Best for: grandparents wanting investment freedom and oversight until the child comes of age.

3. Junior SIPP (Child’s Pension)

A Junior SIPP is a pension for a child, and while they won’t see the money for decades, it’s one of the most tax-efficient gifts you can offer.

• You can contribute up to £2,880 each year
  
• HMRC adds 20% tax relief, topping it up to £3,600
  
• Funds are locked until at least age 57
  
• Investment growth benefits from decades of compounding

It’s not an account for immediate use, but it could make an enormous difference to their financial well-being later in life.

Best for: those looking to give a long-term financial advantage without the need for early access.

4. Premium Bonds

Premium Bonds don’t generate interest. Instead, they give the child a chance to win tax-free prizes in monthly draws.

• Capital is protected and backed by NS&I
  
• Prizes range from £25 to £1 million
  
• Returns are random, and many bonds earn nothing
  
• Over time, inflation may reduce the real value of the capital

While not an investment in the strictest sense, they remain a popular choice — particularly for smaller, risk-free gifts.

Best for: sentimental contributions where security is key and returns are secondary.

How Much Do You Really Need to Invest?

Don’t let big numbers put you off. Even modest monthly amounts, say, £25, can grow into something substantial when invested consistently over time.

Think of it as financial gardening. You’re not planting a forest overnight. You’re watering something steadily, allowing it to flourish quietly in the background. In long-term investing, discipline matters far more than starting size.

What to Invest In — And What to Avoid

Unless you have significant experience, skip the temptation to pick individual shares. It’s risky, time-consuming, and rarely outperforms the market in the long run.

Instead, consider globally diversified funds, especially low-cost index funds. These spread your money across hundreds of companies and often require little to no management.

Some investors consider options like global index portfolios, which are designed to spread risk across markets and require minimal hands-on involvement. Examples might include funds that track international equities or broad market indices.

Choose a fund with a higher equity allocation for young children. As they approach adulthood, you may wish to shift toward a more balanced mix to reduce risk.

How Financial Gifts for Grandchildren Can Affect Your Tax Position

Setting money aside for your grandchildren can also have implications for your personal tax allowances.

For instance, UK tax rules currently allow individuals to gift up to £3,000 each tax year without it being counted towards the value of their estate for inheritance tax purposes.

While some accounts, like ISAs, offer tax-free growth, other vehicles, such as trusts, may incur income or capital gains tax, depending on how they’re structured and how much they generate.

If you’re planning to make significant contributions or have already used other exemptions, it’s worth speaking to a qualified adviser to ensure your strategy is as tax-efficient as possible.

What If They’re Not Ready to Manage the Money?

Many grandparents hesitate at the idea of an 18-year-old inheriting a lump sum. If that’s a concern, you can:

• Choose an account with delayed access (e.g., Junior SIPP)
  
• Use a trust to retain oversight until legal age
  
• Start money conversations early — instilling financial values along the way

This isn’t just about giving money. It’s about guiding them toward using it wisely — a lesson as valuable as the gift itself.

Picking the Right Investment Platform

You’ll need a platform to open and manage the chosen account. Look for:

• Low fees: both platform and fund charges add up over time
  
• User-friendly interfaces, especially if you plan to manage it yourself
  
• Solid investment options: the ability to choose trusted, diversified funds

If you’re looking for a place to start, you can check out our best investment platforms, which highlight popular UK providers and compare their fees and features.

Start Sooner, Not Perfectly

Don’t wait for a windfall or “the right time”. A small contribution started today will likely outperform a larger one that begins years later. When it comes to investing, time in the market is almost always more important than timing the market.

Start with what you can afford and let time do the heavy lifting.

More Than a Financial Gift — a Lifelong Impact

This isn’t just about money in an account. It’s about creating freedom, opportunity, and a different kind of future.

By choosing to invest early, thoughtfully, and consistently, you’re giving your grandchild more than pounds and pence. You’re giving them possibility. And perhaps more importantly, you’re passing on the mindset that helped build it.

That’s a legacy worth every penny.