What are my options if I want to save money for my grandchild?

I know from reading your articles that one can effectively gift €3,000 per year to a grandchild without any tax consequences for either party. Obviously, this requires a bank or credit union account. Can a grandparent open up an account for a grandchild?

Mr J.L.

Grandparents fortunate enough to have enough money at their disposal inevitably have a soft spot for their grandchildren. The practicalities involved in gifting money to very young children in their own name so that they can start to build up a nest egg of savings is among the most common questions to this column down the years.

For many of them, the first big stumbling block is how to do so. Many people are totally unaware of whether you can open an account for a very young child, or how to do so.

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The answer is of course you can, and it is fairly easy to do.

I find it astonishing that Ireland’s banks make so little effort to let people know how to do so. All the evidence tells us that inertia means people will generally stay with their bank rather than go through what they imagine is a complicated process to switch to a more attractive offering. It is precisely for this reason that all the banks make great play (and investment) in attracting the business of students entering third-level education for the first time.

Yet, up to this, there is nothing. For all they invest in advertising, I don’t think I have ever come across an advertisement encouraging parents and grandparents to set up accounts for their loved ones, with the possible exception of An Post promoting saving certificates.

Opening an account

So what does it involve? Let’s go through the various banks one by one. This isn’t an exhaustive list. For the purpose of this piece, I will look at the main accounts available at mainstream banks and the requirements of each for children up to secondary-school age. I will work alphabetically for no reason other than it has a certain logic.

AIB

For children under the age of seven, an account in their name can be opened, but only with the consent of a parent or guardian. Once it is open, there is nothing to stop a grandparent lodging money to it. The account can also be opened in joint names.

To open the account, the parents will need to provide the child’s birth certificate or, as they put it, an applicable court order, as proof of guardianship as well as proof of identity of both the child and the parent(s)/guardian(s) and proof of address. Opening the account can only be done in person.

A demand deposit account will generally carry the lowest rate of interest (currently 0.1 per cent at AIB even after recent increases in savings rates) and, in AIB’s case, you can save anything up to €1 million in such an account.

In terms of withdrawals, as long as the child is under seven, only parents/guardians can make withdrawals. After that, withdrawals can be made in accordance with whatever choice was indicated on the application form when the account was set up.

For older children – those aged between seven and 11 – a junior saver account can be opened in their name, or in joint names. The requirements on paperwork, parental consent and attendance in branch are the same as for a toddler’s demand deposit account, as is the requirement to indicate on opening who can make withdrawals.

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There is no minimum or maximum amount that can be saved but the interest rate available falls on any balance over €1,000 – currently from 2.01 per cent up to €1,000 to 0.1 per cent on anything over that. When the child turns 12, the account automatically becomes a student saver account with the same interest rates applying, and then, at 19, it switches automatically to a demand deposit account.

In all cases, the named account holder – the child/student – may change the signing instructions on the account governing withdrawals once they turn 18.

AIB says that “in some of the other available products” the joint names on the account can be the child and the grandparent, as long as parents/guardians provide their consent and all other opening documentation is provided.

Bank of Ireland

At Bank of Ireland, the rules are quite different. Here, for under-sevens, the one account that allows lump sum payments is the ChildSave account. That can be opened in the name of a parent or grandparent but not in the child’s name, though the child’s name can be noted on the account as the intended beneficiary.

The parent will need to visit a branch to open the account and provide poof of ID, address and their personal public service (PPS) number.

You can lodge lump sums into this account up to sums of €10,000 but, regardless of that, regular monthly sums of anywhere between €20 and €500 must be lodged by direct debit. The current interest rate available is 2 per cent. Withdrawals can be made once a month.

Changing the name into that of the child is at the parent’s discretion, we are told, but it appears from the bank’s general rules that you’ll need to be at least 12 years old.

EBS

At AIB-owned EBS, the option up to 12 years of age is a Children’s Savings Account, and the account will be open in the joint names of the parent or grandparent and the child. The adult will act as signatory on the account and have sole mandate to operate the account.

On the practical side, you will need the child’s birth cert (or applicable court order), as well as proof of identity and address for both the adult and the child and the PPS number for both. Regardless of whose name the account is being opened in, the parent will have to attend the branch for the process and complete and sign the application form.

The balance of this account is capped at €5,000, so it might not suit if you are looking at availing of the full small-gift exemption. The current interest rate on the account is 1.5 per cent. The child cannot make any withdrawals from the account themselves until they are 16 and, even then, the rules can only be amended on the joint application of the child and the adult.

The name (and terms) of the account will switch to Teen Savings Account at 12 (also 1.5 per cent interest), and to a MoneyManager Current Account (zero interest) at 18.

Permanent TSB

Permanent TSB has what it calls a Safari Saver account. For children under seven years of age, this is opened in the adult’s name with the child’s name noted. It does not have to be a parent or even a grandparent, PTSB tells me. It can even be a neighbour, a godparent etc.

In terms of control, only the adult has control of the account up to the age of seven anyway. Only they can make withdrawals. When the child turns seven, the account can be transferred to their name only, or into joint names, but it does not have to be.

As to paperwork, the adult will need proof of identity (passport or driving licence) and of address (utility bill), proof of PPS number (a payslip or even your Drug Payments Scheme card).

For the child, if they are having their name formally put on the account at or after the age of seven, you’ll require their birth certificate or passport if they have one and possibly evidence of PPS numbers – such as a letter confirming their child benefit. For proof of address, you’ll need a letter from their school but they’ll be well in there by the time they turn seven – unless you are home schooling.

The current interest rate applying to this account is 1 per cent on balances up to €19,999. Once the balance hits €20,000, interest on the entire sum saved falls to 0.01 per cent, which is miserly to say the least.

Post Office/An Post

Finally, we have An Post, long the traditional home of child savings.

A deposit account with An Post Money can be opened in the child’s name at any age. Under the age of 18, they will require parental consent; under the age of seven, the parent/guardian has control of the account. At seven, with the consent of the named adult, the child can operate the account independently of the adult.

Also, from age seven to 15½, you can avail of a MoneyMate account. Parent and child can lodge money and the parent can monitor the account via an app. This may well rankle with older children as the monitoring allows parents see the money in the account, see where it is being spent and even set spending limits. An Post says it is shortly adding an option for a parent to to block ATM, shop or online use.

The account costs €2 a month and, in practical terms for account opening and documentation issues, the parent/guardian is legal owner of the account and only they need to provide ID.

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For other State Savings products – such as savings certificates or bonds – joint applications can be made with documentation provided for identity, address and PPS number. An Post says it will accept in the name of the parent/guardian as long as that matches the address on the application form for the child. Minors cannot withdraw funds from fixed-term State Savings accounts, or cash in prize bonds, so you need to be 18 – and have proof of age – to do so.

Credit unions will also have options. I was not able to get around to them on this occasion. I am assuming there will be some discretion within them as to what each individual credit union offers, but perhaps it is something to which we will return.

As you can see, there is a certain similarity on paperwork. I would suggest making sure you have:

• the child’s birth cert
• proof of identity
• proof of address
• PPS numbers for both the child and the adult

Also, check the process with your bank. I am assured that you should just be able to go into a bank with the necessary paperwork and open the account. However, it appears some banks/branches will insist on you making an appointment – either because they don’t know their own rules or they simply do not have the necessary staff available (the joys of modern consumer-focused banking). Either way, it’s best to check if only to avoid disappointment or frustration.

Small gift exemption

I do keep referring to the small gift exemption, and for good reason. It is one of the last great tax breaks available to ordinary people – along with the tax relief on pension contributions.

I’m not suggesting you do so but it is possible for someone who has the financial means to give a child or grandchild the full €3,000 every year – a very substantial pot of savings by the time they face the big financial challenges of life: buying a home and/or having children.

When it first came in, in 1978, the amount you could give was £500 (€634.87). This rose to £1,000 (€1,270) in 1999 and then to the current level of €3,000 in 2003.

If you started availing of the small gift exemption back in 1978, 44 years later you could have gifted €77,777 by now before taking any account of interest on that amount – and all tax-free (apart from DIRT on any interest at 33 per cent). If you started now for a toddler grandchild, they would have a pot of €90,000 (before interest or investment return) by the time they hit 30, just when they might be considering settling down in a first home.

One final thought, especially for those who feel €3,000 is an unmanageable amount to be dishing out to grandchildren left, right and centre, or simply don’t have the resources that would make this possible: it is important to remember that the small gift exemption covers amounts up to €3,000 in any tax year.

It can be anything from €1 to €3,000 and it does not have to be all in one go. So if you have gifted someone, say, €500 at some point in a year and then a maturing policy delivers additional income later on, you can of course top that up if you choose to do so.

But, as I always remind people, despite the Irish obsession with inheritance, no one is entitled to an inheritance and no one should feel obliged to leave one. Your primary focus as you get older and your ability to generate income reduces is to take care of yourself and your life partner if you have one – especially with prices rising all the time. Only after that should you consider what you might like to do for others.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice