Remember having a piggy bank as a child?  Saving is an excellent habit to encourage – and the earlier we start to save, the more chance our money has to grow.

You can give a child as much money as you like but, like adults, children also have a personal tax allowance each year.  The 2011/12, tax year allowance is £7,475.  Over that amount of ‘income’, they’ll have to pay tax on any interest earned on those savings.  If you’re the parent or step-parent, and the money you gift earns more than £100 interest a year, then any interest will be taxed as if it were your own.  Grandparents and other adults won’t pay this tax.

What’s the best way to save for my children?

Banks and building societies have accounts that are set up with children’s savings in mind.  There are also products that have tax benefits, or are even completely tax-free.  Index-linked Savings Certificates, for example, in which any investment is guaranteed to stay ahead of inflation when held for at least a year – or National Savings and Investments’ Premium Bonds, Junior Individual Savings Accounts (JISA) or Child Trust Fund (if your children were born before December 2010). Junior ISAs are available for those under 16 who did not take out a Child Trust fund.

By going to see an independent financial adviser (IFA) now, you could make plans for children’s savings now that will help your sons and daughters in the future.  Setting up a regular investment or even a stakeholder pension, perhaps, and paying in a regular small amount of money for a long period of time is an excellent way to help them save for later in life. Use our search tool, and you’ll find an IFA in your area who can help you start saving for your children sooner rather than later.  

Questions you might like to ask your IFA…

Will these savings be accessible by my children?

Can I set up a fund that they can’t access, until a specific time – like their 18^th birthday?

Are there any tax implications for me, if I transfer money to my children?