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In these challenging financial times, building savings can just seem like an impossible ask. Every penny is already accounted for – and then some.
And if you have young children or grandchildren, you probably want to put aside a bit of money for them, to help them in the future. But what is the best way to do this? And is it realistic in the current economic climate?
In this article we explore five ways to go about building a nest egg for your children or grandchildren.
Starting a savings account for a child is a good place to start. Even if you can only put in £10 a month, if you do this between the time they are born and when they reach 18, it could amount to around £3000, depending on the rate of interest.
If you do want to use this method, make sure that you open a specific children’s savings account rather than another adult savings account, as children’s accounts usually offer a higher rate of interest.
Another popular way of saving for children is Premium Bonds. Premium Bonds can be purchased in £25 batches, and you could actually buy up to £50,000 in Premium Bonds for children aged under 16.
Premium Bonds don’t earn any interest, but they are entered into a monthly prize draw with the possibility of prizes between £25 and £1 million, so this can make it an exciting savings option for children. The more bonds you have, the more chance there is of winning a prize, but the average equivalent rate of interest is around 1.4%.
However, Premium Bonds are also a safe option in that you can cash in your bonds at any time.
A Junior ISA – JISA – is another good way of building a nest egg. You can save up to £9000 a year in a JISA. Interest rates are likely to be higher than many saving accounts, and there is no tax to pay on the interest (when that becomes relevant for the child).
A potential drawback is that money invested in a JISA can’t be withdrawn until the child is 18, so you would need to be happy about locking the money away for that period of time. Once the child reaches the age of 18, the money will belong to them for them to use as they decide.
Another form of JISA is a stocks and shares ISA. Instead of gaining a particular rate of interest, your money is invested in stocks and shares. The advantage of this kind of investment is that it can yield a higher rate of return than a fixed or variable rate of interest. However, it is not without risk, as the value of your money could fall instead of rise.
But if you are planning a long-term investment, say five years or more, investing in stocks and shares is potentially something to consider, and a JISA is an easy way to do that.
This may seem strange, but did you know that you can set up a pension for a child? A pension can be started on behalf of any child under 18, and you can pay up to £2,880 into it. Any money you pay into the pension will benefit from 20% pension 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 the age of 55 (this rises to 57 in 2028). So, there are many years for the pension to grow, even if you only pay in for a few years. And it is something that will help your child or grandchild later in life.
We hope that the above ideas help you to decide on the best way for you to start building a nest egg for your child or grandchild.
Also be aware that if you are concerned about the way your child might use the money when they reach 18, you can set up a Trust to set conditions on the money, for example that the child can only access it when they reach a certain age or circumstances. This could be worth investigating, but can also be quite complex. But if you feel it might be a wise move, then do seek legal advice.
Meanwhile, if you need any additional short term funding for you or your family, remember that Loans 2 Go offer online loans that may be able to help.
Do visit us here again soon for more financial and lifestyle tips from Loans 2 Go.
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