Saving for children
When it comes to saving, children have one big advantage over adults: time. Thanks to compound interest, time really is money, as the longer savings are in place, the bigger they will grow.
Setting up savings for your child will not only build up a nice nest-egg for when they grow up. It should also (hopefully) teach them the value of saving and help you to coach them in effective money management.
Here are some of the ways in which you can turn the years of childhood into a savings opportunity.
Children’s bank accounts
Most banks or building societies offer accounts designed especially for children. They are a great way of helping your child learn how to manage money and save, and some will come with special educational features designed to support them. As with all bank accounts, they all have their individual benefits, so be sure to shop around for the one that suits your child best.
A Junior ISA (JISA) is a tax-effective way to save for children, just as it is for adults. You can open a cash JISA or a stocks and shares JISA (each child is allowed one of each). Given the long timescale of a JISA, stocks and shares have the potential to deliver greater growth than cash, so ask your financial adviser about this option.
There are limits to how much you can save per child per year and the interest (or growth, in the case of a stocks and shares ISA) is tax-free. There are different rates of interest available from different providers and with a stocks and shares ISA, it’s important to remember the return is variable.
Child Trust Funds
Introduced by the government in 2002, Child Trust Funds have since been replaced by JISAs. However if your child has a trust fund this means they can benefit from tax-free savings. The money belongs to the child but is locked in the account until they turn 18. In addition to the starting voucher that the government will have provided at the child’s birth, parents and other loved ones can pay up to £4,128 into the account each year in total.
You have the option to transfer a Child Trust Fund into a JISA, which may offer better terms. Talk to your adviser about this.