Patrick Connolly, a certified financial planner with Chase de Vere, says: "The banks don't seem to make saving on behalf of non-residents easy. While they might use excuses not to accept non-residents there is no legal impediment to opening a savings account for grandchildren who live abroad. Some banks are simply being obstructive because it's probably non-profitable business for them."
Emigration from the UK has been steadily declining since its peak of 427,000 in 2008 and reached 320,000 in the year ending June 2013, according to the latest figures from the Office for National Statistics. Emigration is now at its lowest levels since 2001. Fewer people are emigrating for work-related reasons, which have fallen since the year ending June 2012 by 11,000 to 188,000 in the year ending June 2013.
Mr Connolly continues: "Those banks that will let you open an account often give lower rates of interest and also might not accept HMRC's form R105 which would allow interest to be paid gross, without the deduction of tax, to those not ordinarily resident in the UK.
"So the only real answer is to keep asking banks and building societies until you can find one that will accept non-residents, doesn't penalise them too much with lower interest rates and is willing to accept the R105 form."
One option is the Headstart Savers Account from Clydesdale Bank and Yorkshire Bank, which are both subsidiaries of National Australia Bank Group. This account allows a grandparent to open and account on behalf of a child who is a non-UK resident, providing they meet the identification requirements, which include providing a copy of the child's current passport, birth certificate or NHS medical card. The R105 can be completed by non-UK residents. However, the gross interest rate payable on this account is 1.5 per cent (the account pays 1 per cent above the Bank of England base rate, which is currently 0.5 per cent), meaning it is not competitive. Halifax pays much more - its Kids' Regular Saver pays 6 per cent interest, while its Young Saver account pays 3 per cent.
Charlotte Nelson, press officer at Moneyfacts Group, says: "Your reader's best option would be to ask the parents to open an account overseas for the children and send them over the money. His second option is that he could open an account here in the UK and pop the money in himself for when he sees fit. However, he will have to pay tax on the savings and will be affected by exchange rates."
For transferring small amounts of money abroad, the MoneySavingExpert website recommends Transferwise, a peer-to-peer currency service that lets you transfer as little as £1 online for low fees. The money should arrive in one to three days.
Depending on how long you're looking to invest for and how much risk you're willing to take, you might get a better return by investing in stocks and shares.
Non-resident children won't be able to open a Junior Isa or Child Trust Fund account, which allow stocks and shares to accumulate free of tax.
However, Mr Connolly says: "An alternative could be a diversified investment trust, such as the Witan Investment Trust, which you would hold in your own name but can stipulate that it's being held on behalf of a child. This means you can decide when they get the money, although any tax liability would fall on you."
Before Child Trust Funds and Junior Isas came along, if you wanted the money you give to be the child's property, the simplest way to do this was through a bare trust - and this is still an option for parents and grandparents.
Many open-ended funds and investment trusts can be held within a bare trust. Alternatively, you could hold a range of investments within a bare trust set up by a stockbroker - for example, via the Share Centre's Junior investment account.
A bare trust is treated as the child's for tax purposes, which can be particularly useful if you are likely to be making full use of your own annual capital gains tax (CGT) allowance or are a higher-rate taxpayer. When the child reaches 18, they gain full control of the investments. Witan confirmed that its shares could be held in a bare trust for a non-resident child - however, the donors/trustees must be UK resident.
