The best ways to save for your children’s future

If you are a parent you want the very best for your child, and this includes helping them towards a secure and happy future. So one thing you may want to do is start saving some money for your child’s future, whatever that may look like. Whether their future self will need money for education, a home, a car or to follow their passions and dreams, you want to give them the best start possible.

So the earlier you start some kind of savings for your child, the better. No matter how small the amount of money you can put aside, there is more time for it to grow by the time your child will need it. The key thing is to be consistent and make small, regular contributions into your child’s savings.

But where is the best place for those savings?

In this article we take a quick look at six possible options for you to save for your children’ future:

• Children’s savings account
• Junior Cash ISA
• Junior Stocks and Shares ISA
• Premium Bonds
• Trust Funds
• Child pension

Children’s savings account

A children’s savings account is probably the most simple and popular way to save for your child’s future. Even if you only put in £10 a month, it could be worth a couple of thousand pounds or more by the time your child is 18. 

Your child’s savings will be worth more depending on the rate of interest offered, so look for a specific children’s savings account with a good rate of interest. You may find that regular saver accounts – where you commit to paying a certain amount each month – offer higher interest rates.

Junior Cash ISA

A Junior Cash ISA enables you to save up to £9000 per year for your child until they turn 18. Any interest they earn on the money is tax-free. The money is locked away until the child reaches their 18th birthday, when it will then belong to them for them to use as they decide.

Junior Stocks and Shares ISA

Another form of Junior ISA is a Stocks and Shares ISA. In this type of investment, the money is invested in stocks and shares rather than gaining interest. This has the advantage of potentially achieving a higher rate of return than a fixed or variable rate of interest. But it’s important to understand that the value of investments can fall as well as rise, so it’s possible you may get back less than you paid in.

Another option for investing in stocks and shares for your child is to set up your own investment account and invest in shares or ETFs (Exchange-Traded Funds) on your child’s behalf. But again, be aware that all such investments carry an element of risk.

Premium Bonds

Another popular way of saving for children is Premium Bonds. Premium Bonds can be purchased from NSI (National Savings & Investments) in units of £25, up to a maximum investment of £50,000. 

Premium Bonds don’t earn any interest, but instead they are entered into a monthly prize draw with the possibility of tax-free prizes between £25 and £1 million. Prizes can either be taken as cash or automatically reinvested in more Premium Bonds. 

The advantage of Premium Bonds are that your original investment is safe and you can cash in your bonds at any time. The monthly prize draw can also make it an exciting savings option for children. 

The main disadvantage is that prizes are not guaranteed, so your money may not grow. The annual prize fund rate – which is the average equivalent interest rate earned by Premium Bond holders – is currently 3.60%. But this interest rate is an average across all holders, and most individual savers are likely to earn less than this.

Trust Funds

Another savings option is to set up a Trust Fund for your child. The most usual Fund for this purpose is known as a bare trust. A bare trust allows you to hold money or other assets for your child and manage those assets (including investing them to gain higher interest) until your child reaches the age of 18. Once your child is 18, they have the right to everything in the trust at any time.

A bare trust would need to be registered with HMRC and it is advisable to get advice from a solicitor or financial advisor about how to set one up.

A child pension

It is a little-known fact that you can set up a pension for a child in the UK. A Junior Self-Invested Personal Pension (SIPP) can be started on behalf of any child under the age of 18 at any time, and you can pay up to £2,880 per year into it. 

Any money you pay into the pension will be topped up by the government with 20% tax relief. So, if you did pay in £2,880 you would also gain tax relief of £720, boosting the total to £3,600.

The pension is a very long term investment. Under current rules, your child can only access it when they reach pension access age (currently 55 but rising to 57 in 2028). But this kind of investment is something that could be very much appreciated by your child in their own later years.

We hope that the above information helps you to decide which is the best way for you to save for your child’s future. 

For more hints and tips on family finances and everyday living, remember to check back here soon with us at Loans 2 Go.