Securing a Financial Future
Finding ways to save for children is much easier today than it used to be. Banks offer far more variety in children's investments. With some options, the government even contributes extra towards your savings effort by giving you cash bonuses. Here are the best children's savings accounts and other methods that parents can use to help save for their children.
The Junior ISA
Junior ISAs have been around since 2011. They were designed as a replacement for the Child Trust Fund plan (the scheme that existed before junior ISAs). Once you open a junior ISA, you and other members of the family can contribute up to £3600 tax-free into it each year. You can only make deposits, though. The withdrawal facility stays locked until the child turns 18. Once the child does become eligible to access the money, he can use it for anything from college fees to starting a business. Junior ISAs come with the same tax benefits that adult ISAs do - the money obtained in the end attracts no capital gains tax or income tax.
Junior ISAs come in two varieties - cash and stocks. In the stocks junior ISA variant, the exact amount that your child gets in the end depends on the way the markets perform. Assuming a conservative 5% rate of return, though, a £300 monthly contribution starting when your child is born should add up to more than £100,000 by the time he turns 18.
Personal finance experts often recommend stakeholder pensions as one of the best children's savings accounts around. While stakeholder pensions were originally conceived of as pension plans for the unemployed, they can be easily used to save for a child, too.
When you open a stakeholder pension in the name of the child, anyone in the family can contribute as much as £2880 a year to it. Whatever contributions you and the rest of the family make, the government adds to it with its own contribution. In the end, you end up with £3600 a year. Since the £2880 sum is well within the limited exemption for inheritance tax, no taxes are owed if the parent dies within 7 years of having opened the account.
Junior Self-Invested Personal Pensions
The Junior SIPP is a pension plan, too. Just as with stakeholder pensions, this plan comes with a £2880 yearly contribution limit and an additional contribution from the government that brings it up to £3600. The money that you contribute to a junior SIPP each year earns returns on the stock market. In the end, the money it pays out attracts no capital gains tax. If you manage to contribute £300 month from the time your child is born up until the day he reaches 18, your child won't need to do anything else to secure his retirement. Assuming a conservative 5% return, you child has to contribute nothing more to his retirement to be handed £1 million when he turns 65. It's a good idea to shop around for the best plan, though. Some plans allow more facilities than others.
Conventional children's savings accounts
The best children's savings accounts offer you more than an opportunity to save for your child. They help your child learn financial responsibility. Most banks and building societies offer special savings and current accounts for children as young as seven. They pay better interest than regular accounts and even come with debit cards and credit cards to help children learn how to these financial tools work.
Premium bonds for children
Premium bonds are investments that family members buy for their children. Investments of any value between £100 to £30,000 are allowed. Bonds are not likely to be profitable, though. Their main draw is that they enter your child's name to a kind of monthly lottery for prizes up to £1 million. Depending on winning the lottery, though, isn't way to save for your child's future or to show him how to handle money.