When that button-nosed little bundle of joy is first put in your arms, you probably won’t be thinking about, how to save money for your child – the adult they will become in 18 years’ time – or the cost of getting them there.
Yet financial planning for your baby’s future is as important as making sure they eat their greens.
Every parent knows how much a child can cost in the first stages of their life. There’s the nappies, complicated buggies, clothes, toys… the list is endless.
Yet learning how to save money for child’s longer-term costs such as funding a university course or buying a first car can make the money spent in the early years look like small change.
By saving for your child’s future when they’re young, you can be confident that you’ll be able to give them a foot on the ladder of adult life when the time comes.
Look at it this way: if you were to save £50 a month from birth into the average UK stock market fund (with a hypothetical interest rate of 6% a year) your child would end up with a pot worth nearly £24,000 at the age of 21. Not bad is it?
Certainly enough to fund a university degree or help with a deposit towards their first home.
So, where and how to save money for your child? Firstly decide whether you want your child to have access to the cash.
Remember if the money’s in your child’s name, it belongs to them. So if you’re worried they will splash the pot on ringtones and sweets, it’s probably best to put the account in your name.
How to Save Money For Your Child’s Future: Top Five Ways
1. Junior ISA (JISA)
A tax efficient way to save for your child. You can put up to £4,080 per tax year into a Junior Cash ISA or a Junior Stocks and Shares ISA (where the money is invested in stocks and shares) and you won’t pay any tax on the interest.
The money is locked away until your child’s 18th birthday, when it is legally theirs. So if you have it earmarked for University but your wayward 18-year-old plans to spend it on clothes and clubbing, there is nothing you can do about it. If this worries you, consider another option.
2. Savings Accounts
Opening a savings account for your child is one of the best ways to build a nest egg. You can open an account in your name or in your child’s name and pay in as much as you can afford.
Choose either a Fixed Rate (with fixed term interest) or a Regular Saver (where you deposit an amount each month) for the highest interest rates.
3. National Savings and Investment Children’s Bonds
The National Savings and Investments (NS&I) is another good way to way to save for your child. They are the most secure of all investments because the bank is backed by the government which means they cannot go bust.
NS&I offers fixed interest, tax-free Government bonds that run for a five year term and can be rolled over each time until the child is 16. You can start by investing £25 and contribute up to £3,000 per bond.
4. Unit Trusts and OEICS
The stock market is one of the best places for long-term saving and unit trusts and OEICs (Open Ended Investment Company) are the most popular options. With a unit trust, a fund manager buys bonds and shares in companies on behalf of the fund.
Your child cannot hold a unit trust but you can open one on their behalf. You can invest as little as £25 a month or a £500 lump sum with an initial charge of 5%. Income earned can be paid into a savings account or reinvested into the fund.
A trust is a legal arrangement where you place money or assets into a pot managed by ‘trustees’. There are two types:
- Bare Trusts: Here the money is treated as the child’s assets for tax purposes and gives your child the right to the money at 18.
- Discretionary Trusts: This helps you as the trustee to keep control over the money you are saving for your child and also allows you to decide how much to pay out but you will be liable for tax.
For more information on trusts visit HM Revenue & Customs at www.gov.ukThe best time to start saving for your child’s future is NOW. Click To Tweet
The best time to start saving for your child’s future is NOW. You need to give your savings time to grow. Whether you decide to put a small amount away every month or a lump sum, it will all count towards giving your child the best future possible.
Over to you – how do you save for your child’s future? We’d love to hear your tips, leave a comment in the box below.