They have both said that they don't trust me or my wife (for reasons TOTALLY unclear to me) not to keep the money for ourselves (which we would never do). So they want to pay it in direct. They also believe (falsely) that i can steal from a "normal" account in my daughter's name, but that an ISA is more secure.

I'm not saying the grandparents are right to mistrust you, but I've heard of so many cases of familial fraud and misappropriation that I don't blame them for wanting to cover all eventualities.

Family financial disputes seem quite common, and if it was spent a a decade ago then the money may never be recovered. Whenever I read such stories, the feckless parent has no assets from which recompense could be recovered, and there's nothing to be done but jailing them.

I can find a number of such stories in the newspapers by searching now (1, 2, 3), but I suspect the cases reported to the police are the minority, and that it's more common to for young adults to accept that the money's gone and to live with a family relationship which is permanently bitter and soured.

Like I say, I'm not saying they're right to mistrust you, but if you're in financial services yourself, you must see that the "right" thing to do is to pay it into an account in the child's own name, preferably one which cannot be accessed by you.

I'm a bit surprised that you say child ISAs are not more secure than a regular bank account - pages at gov.uk (1, 2) suggest that they can be managed by parents, but the child can't withdraw from them until they're 18. I'm sure that's a strictly-enforced legal stipulation.

I would assume there'd be no such requirement for a regular bank account - I had loads of bank accounts when I was a kid, from which I was freely able to withdraw money. I can imagine a parental signature being required for some kind of "child savers" account, but I can imagine no kind of regular bank account prohibiting access to the saver's money for years on end.

Maybe you're right that a regular account would be just as secure as a child ISA - I'm just saying that, if so, I can see why the grandparents may be under the apprehension that it might not be.

Child ISA's were introduced specifically to replace Blair's Child Trust Funds and it's right that they should be locked up by law so that no withdrawals until the holder comes of age.

One can easily imagine contingencies in which a parent might say "we need to withdraw these funds, it's for the good of the child". Surely better to withdraw a child's savings than for the family to be homeless, right? That seems exactly why child ISAs might have stronger legal protections than a regular account.

I've always been very lucky in my relationships, and I can't say I've ever had a properly acrimonious breakup. When it comes to a couple who've fallen in love, raised children and spent years together before divorcing, however, it's easy to see why they might feel betrayed or want to feel prepared against future acrimony.

I'm sorry my comment does not offer any direct answers, but perhaps after reading it your in-laws' behaviour seems a little less incomprehensible.