What better gift to bestow on your beloved offspring than the gift of money? No, you won’t have to pop your clogs before they receive it; this isn’t inheritance. This is a gift of matured money that you save for them over the years so that they can use it when they are older: for their university education, first car or perhaps even a deposit for a home. You can even get your child involved with saving at an early age so that they have an awareness of the value of money.
So where do you start? Here are some products to help you start saving for your child.
Children’s Savings Accounts
The most popular form of saving for a child is a savings account.
How Do They Work?
You can open an account with as little as £1 on behalf of your child at most banks and building societies. Then, once your child reaches the age of seven, they can then begin to manage their own account – which is a great lesson in learning how to manage money – and they can withdraw from or credit their account when they like. They may even receive a small gift, such as a money box from the bank or building society.
Don’t worry that your child can access the account and buy a million emojis or 20 Nintendo games. Most accounts allow the adult to stay in control of the cash until the child turns 16. After then… well, let’s hope you taught them some lessons to manage their money…
Let’s have a quick look at the different savings accounts below:
Regular Savings Account
Regular savings accounts tend to pay the best interest rates, although access is limited and you need to pay in money each month. Most pay an average of 4% interest.*
Easy Access Account
The advantage of an Easy Access account is that you or your child can add and withdraw money from it at any time. However, interest rates do tend to be lower than that of regular savers (typically around 2%*).
But, just think, if you saved £10 for 18 years in a 2% per year savings account, there would eventually be over £2,500, which could help with buying a first car or be used towards university fees.
Fixed-Rate Savings Account
These type of savings accounts are also known as bonds. You tie your money up for a specific term, usually between one and five years and withdrawals are not permitted.
However, in return, you could get a fairly good interest rate (at the moment, around 2%*) but there’s a risk that you could miss out on higher interest rates available later on if you’re stuck in a long-term deal.
Would A Junior ISA Be Better?
A Junior ISA, or Junior Individual Savings Account, is designed for children up to the age of 18. They’re a way to hold cash on behalf of your child and benefit from tax-free savings.
The annual Junior ISA allowance will rise to £4,260 from April 2018 and like an adult ISA, your child won’t pay tax on interest on cash held in an ISA or income or capital gains from investments in an ISA.
The money is invested until the child turns 18 and if they don’t withdraw it, the Junior ISA automatically converts into an adult ISA.
What About A Junior Stocks and Shares ISA?
There’s another type of Junior ISA out there.
With this type of ISA, you decide where to invest your child’s money – could be in funds, shares, investment trusts, bonds – and the interest earned is tax free.
However, this option is a little riskier than a straightforward cash ISA since the value of the investment may vary throughout the duration of the investment. You should take financial advice on which type of investment would suit you and give you the best dividends as this long-term investment.
You should be aware that a child can have only one Junior Cash ISA and one Junior Stocks and Shares ISA during their childhood, but they can switch to different providers.
NS&I Premium Bonds
Instead of receiving interest from traditional savings accounts, every premium bond (£1) is entered into a monthly prize draw, with winners being selected at random by National Savings & Investments (NS&I). You’ll need at least £100 saved in your premium bond account (100 premium bonds) to enter the draw to be in a chance of winning tax-free prizes worth £25 to £1m every month.
The NS&I is backed by the Treasury so it’s pretty much guaranteed that your money is safe.
It’s also easy to apply: if you’re a parent or legal guardian, you can buy bonds on behalf of your child aged under 16 either online or by phone.
However, unlike a savings account, you won’t receive a guaranteed return and neither will your child receive a sum at aged 16 like an ISA would give.
Furthermore, you’re essentially playing a lottery with your money so you could win nothing at all – but you could hit the jackpot. However, the odds of each £1 bond number winning a prize are currently 24,500 to 1…
And Another Thing…
Check If Your Child Has A Lost Child Trust Fund
Child Trust Funds (CTFS) are a savings accounts which were opened for babies born between September 2002 and 2 January 2011 by the Government. Every account was credited with up to £500 from the Government so that parents, relatives and friends would be able to save more tax-efficiently to boost their child’s savings.
Around six million young people across the UK have a Government Child Trust Fund (CTF), but figures indicate that as many as one in six of them may have been lost.
The first children who received a CTF account will be turning 16 this year, so if you think your child may be one of those with a lost account, track it down! To do this, visit the HMRC’s dedicated page. Simply fill in some basic information about you and your child. You’ll have to register for Government Gateway to access this service.
So you’ll see there are many ways to save for your child’s future. All options come with their advantages and disadvantages so you should seek advice to check which one(s) suit your requirements best.
*At time of writing in March 2018
About the Author
My name is Natalie Blackburn and I’m a busy 36 year-old mum of two under five. I am from, and still live, in the vibrant city of Manchester. Since entering into my thirties and becoming a parent, I developed an interest in good financial planning, and coupled with my passion for writing, I have lovingly created the blog that you read on Sophisticated Savers.
Other interests of mine include reading (autobiographies are a particular favourite) and running (but only if I am pushed to, so I wouldn’t really call it an interest, but just wanted to sound as though I was quite fit!) and yoga (that is a real interest!). Wine and chocolate are also my real interests, and the occasional travel when I have the time.