Top Savings Accounts for Grandchildren to Make Their Future Shine
Many grandparents try to figure out the best way to invest for their grandchildren. There are many different reasons and motives for investing. Some think of the high cost of raising children and college tuition, some want their grandchildren to have a smoother start in life, and many don’t want their grandchildren to have the same struggles for affording education as they once had. Usually, the best way to make investments for grandchildren is to open up a savings account and secure their finances for the upcoming years. But there are other ways to contribute to their future too.
No matter the reason, if you are among those who want to and can financially support their grandkids, there are several ways for you to contribute to their financial future. Here are some of the best ways to make investments for them.
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Top Savings Accounts for Children
Saving accounts are the easiest and most common way to save grandkids money. By opening an account at a local bank, you can teach them the basic financial facts of life. Since such accounts provide them with interest, they understand that their money is making money when they receive it. One great advantage about saving accounts is that if the money comes from you, the interest on the grandkid’s account won’t be taxed.
How to Choose the Best Savings Account?
Choosing the proper savings account depends on the purpose of investing, the amount of money you want to add, and the access you want to allow them to have.
Regarding these three factors, first, compare interest rates. The good news is that children’s accounts offer the best rates on the market. Therefore, make sure to choose those accounts paying the most interest.
Second, consider the tax. As someone gifting money to grandchildren under 18, you may need to pay tax on that money. If the given money outside the junior ISA earns more than £100 in any tax year, you should pay tax on all the interest at your tax rate.
If you wish to manage the account till your grandkid reaches the age of majority, consider custodial accounts. Unlike the regular kid’s saving account, you are the only one who manages different investment options in such accounts.
Here are some of the best savings accounts for children in Canada:
Note: All the saving accounts listed below offer no monthly fees.
| Top Saving Accounts for Children In Canada | ||
|---|---|---|
|
Saving Accounts |
Interest | Things to Consider |
TD Youth Account |
Up to 0.01% interest |
No minimum balance Automatic savings plan |
CIBC Youth Account |
0.05% interest |
Suitable for those who are 18 or younger Access to thousands of ATMs in Canada |
RBC Leo’s Young Savers Account |
0.01% interest |
$25 bonus for opening a new account |
|
Tangerine Children’s Savings Account |
0.20% interest |
To open a savings account in Tangerine, you must have an existing account at the bank Access to 3,500 ATMs in Canada |
Canadian Western Bank Youth Account |
Up to 0.50% interest |
Access to the exchange networks of ATMs |
BMO Plus Plan Youth Chequing Account |
0.05% interest with a premium-rate savings account |
Thirty transactions per month Suitable for kids who are 12 and younger |
Scotiabank Getting There Savings Account |
Up to 0.10% interest |
Automatic saving plans Access to 55,000 ATMs in Canada |
529 Plans
Don’t worry if you are a citizen of Canada and still want to hold 529 plans; its implications are cross-border. These tax-advantaged accounts cover educational expenses from kindergarten to gradual school.
There are two types of these plans: prepaid tuition and educational plans. A prepaid tuition plan allows a beneficiary to purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices. Prepaid tuition plans usually do not allow you to prepay for future room and board at colleges or universities. They do not let you prepay for elementary and secondary school tuition as well.
State governments sponsor most prepaid tuition plans with residency requirements for the saver and beneficiary, and no federal guarantees apply to prepaid plans. Several state governments guarantee the money paid into prepaid tuition plans, but others don’t.
If the plan’s sponsor has a financial shortfall, you might lose some or all of your money in the plan. Additionally, if the beneficiary does not attend one of the participating colleges or universities, the prepaid tuition plan may be less than if the beneficiary attended. The original investment may only yield a small return.
The last one, educational plans, are the most common types; here, you can choose the fund you want to invest in as the account holder. Consequently, the fund’s performance will determine the account’s growth over time.
Other Alternatives to Opening Up Saving Accounts for Grandchildren
As we said, savings accounts are not the only option for grandparents who want a brighter future for their grandkids. The following investments are some other ways to make the road ahead of your little loved ones easier.
Stocks or Equity
Investing in stocks is another brilliant way to save money for your grandchildren. It provides an excellent opportunity for you to teach them how to invest and emphasize the importance of thrift and general money management skills. In doing so,
- Open a Custodial Account; either UGMA or UTMA saving accounts depending on your residence state.
- Consider the gift tax rules. Regardless of the account type, you must pay gift tax if the money goes beyond $12,000 per child per year.
- Apple, Google, Tesla, McDonald’s, Disney, and so forth are the included companies. However, keep in mind that you can’t buy the companies’ stock directly. Some online stockbrokers such as Robinhood, M1 Finance, Public, and Stash will be there to help you buy stock from companies.
Mutual Funds
Mutual funds, also referred to as portfolios, are great opportunities for investing money. The principal investments of mutual funds typically fall into one of these categories: money market funds, bond or fixed-income funds, stock or equity funds, or hybrid funds. A fund can also be classified as an index fund, which is passively managed and follows the performance of an index, like a stock index or bond index, or an actively managed fund, which outperforms the market index but usually charges more fees.
Mutual funds provide you with a pool of money gathered from different investors to invest in stocks, bonds, and other assets. Investors also have access to diversified managed portfolios at a low price. In this way, the money will grow in a safe place until your grandchild grows up and need it. You can invest in mutual funds through IRAs.
Bare Trusts
A bare trust is a legal arrangement in which you appoint a trustee (you or someone else) to manage the money given away. You should put some money aside and name the beneficiary. The grandchildren can use the money when they are old enough to manage it. Bare trusts are available for school fees and other expenses. Remember that assets in bare trusts are taxed as if they belong to the child. Therefore, you don’t need to pay any tax.
Final Words
Grandparents’ valuable role in family and community health is evident across all cultures. Furthermore, research shows that grandparents positively affect grandchildren’s development in modern industrialized societies.
Various disciplines, including sociology, economics, psychology, and evolutionary biology, have explored several factors that influence grandparents’ likelihood to invest in their grandchildren. However, remember that many grandparents cannot financially help their grandchildren, and the point is that you have no obligation to do so.
Nevertheless, suppose you can and wish to demonstrate your commitment to seeing the next generation succeed rather than struggle and equip them with the resources to live a better life. In that case, the list above shows some of the best ways to do so.
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Interesting and informative article! But since the inflation rate has risen, the government has also raised the interest rate. I wonder if I can withdraw money whenever I want? And the same goes for my grandchild. Can he, as a 10-year-old child, have access to his account?
Linda, if you are the account owner, you will be able to withdraw, but I’m not sure if you can do that at any time. And about your kid, he won’t have access until he comes of age, usually 18 or 19, depending on your province or territory.
One bad thing about these so-called saving accounts is that they come with withdrawal limits to prevent you from using your funds. Even though you can access your money whenever you want, a penalty fee will accompany every transaction above this limit.
What are the documentation requirements to open a saving account?
I have opened a CIBC Youth Account for my grandson, who will turn 12 this year. It was a good decision and a wise investment. I’m glad I made it.
One of my friends did this twenty years ago for her grandchild every month. Though what she saved was little each month, now, after all these years, her grandkid has a considerable amount of money for her education, so I’m sure that’s an excellent way to give a gift that can be life-changing.