Many Australian grandparents are eager to be part of their grandchild’s upbringing in some way or the other. Whether they help with babysitting duties when needed or just get to enjoy special time with their grandchildren whenever they can.
Some grandparents also wish to help financially by opening a savings account for a grandchild. But how can a grandparent give a savings account to their grandchild, and does it raise any financial issues?
Nearly all banks or credit unions in Australia have specially structured accounts for children. So in principle, you can set up an account for your grandchild, but you’re not permitted to gift this type of account to a minor. A child will most definitely benefit from such an account, a parent or a legal guardian is just required to open it.
Can grandparents set up savings accounts for grandchildren?
Grandparents in Australia are allowed to open a savings account in the name of their grandchild. These gift savings accounts are managed by the grandparent until the grandchild reaches a mature age to manage it themselves.
Grandparents can either deposit a lump sum in the account or transfer funds regularly. The money in the account will earn interest, and can’t be used for day to day child-rearing expenses to be considered a child’s account. Depending on the account balance, the child named on the account could be subject to tax on the interest earnings.
How a gift savings account for your grandchild works
Let’s say that you’ve decided to open a savings account in the name of your grandchild this year for Christmas with your bank. If you’re the legal guardian, you’re allowed to do so, provided you can show the bank a copy of their birth certificate. You can set up monthly electronic transfers from your account to the account for your grandchild, and they can earn bonus interest over and above the monthly deposit made.
Since your grandchild is the primary account holder and still a minor, you needn’t worry about having to pay taxes on the interest earned, as long as the amount remains below $416. If the value increases, then your grandchild as the primary account holder, will be required by law to file tax returns with the Australian Tax Office at the end of the tax year.
Is there any other financial gift that I can give my grandchildren?
You could consider a high-interest savings account or a term deposit. The rules regarding tax on interest earnings and parental access would be the same. But this is a wonderful way to teach a young child about savings and show them the time and money you need to invest to reach a financial goal.
You could also consider establishing an insurance bond in your grandchild’s name. It works like a managed fund and can help you (and the parents) put aside savings for higher education or other large ticket expenses. You could also enjoy tax benefits when you open this type of savings product as a gift. So you might want to consider holding onto it for an extended period.
Some good gifts for special occasions
Of course, grandchildren can be given gifts on any festive occasion, and even for no special reason. Birthdays or holidays are good occasions for opening a savings account for a grandchild.
Yes, there is a possibility that a bank passbook might not excite your grandchild as much as the latest mobile phone would. They’ll soon realise that the savings account is a gift that keeps on giving. With the established gift of a savings account, your grandchild can then look forward to all the monetary gifts that you’ll give, and watch with glee as the account grows.