Child savings: how much is allowed?

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How much can a child earn in interest or is this taxed?

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If the money is in the child's own name then you are holding it in bare trust for her and it is no longer your money to use.

With regard to the "£100 rule" http://www.hmrc.gov.uk/manuals/saimmanual/SAIM2430.htm
http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4310.htm

http://www.which.co.uk/money/tax/guides/tax-and-your-children/children-and-tax/
http://uk.virginmoney.com/virgin/savings/learn/childrens-accounts/

The interest on the account belongs to your child but if it is more than £100 a year and has been provided by you then it will be taxed at your highest marginal rate.

The grandparents may make your child a gift - interest on money from grandparents ( or indeed from anybody other than parents) is not subject to the £100 rule but your parents might need to have regard to the IHT rules - the gift should be documented in their records and in yours. http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

The child has a tax free allowance like an adult - most children do not pay tax and therefore it is possible for R85 to be completed for their accounts - however, if the interest earned brings a child's income over the tax free amount or where the 10% rule applies ( http://www.hmrc.gov.uk/taxon/worked-examples.htm) or where an account is being held in bare trust after the child turns 16 or where there are other complicating circumstances( like, for example, interest of over £100 arising on an account where the capital has been provided by a parent), the R85 should not be completed but the parent should make a claim on the child's behalf for any tax overpaid on form R40.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10338842/15m-tax-raid-on-childrens-savings.html might be worth a look.

Does your child have a CTF/JISA? The interest is tax free whoever provides it. https://www.gov.uk/child-trust-funds/overview

A telephone call to HMRC should clarify if you are unsure?