Easy ways to save for your kids
5 min | 30 May 2023
Juggling life when you have children can leave little time to think about a savings plan for you, never mind them. But there are a few easy ways to get started and put some money away. As you’ll see, it’s never too early to start planning for your children’s financial future, and there are plenty of options to consider.
Whether it’s money you’ve set aside or cash gifts from relatives, don’t worry about starting small because as your children grow, their savings can grow, too. This could give them a much-needed financial boost when they’re older.
Bank accounts and savings accounts
One easy place to start could be with your current bank. Check if they offer options for kids’ accounts that could allow you to open one on their behalf and give you control until they reach a certain age (usually around 16). After that time, it becomes an account that the child can use without parental intervention.
Some accounts let children apply from the age of 11. Instant access accounts tend to have a lower rate of interest than fixed-term savings accounts, which usually don’t allow any withdrawals except when you close the account. Otherwise, they may charge an interest penalty.
There are also prepaid cards from online providers. They often come with an app that can help your child stay motivated with things like earning pocket money for completing chores.
Whatever option you and your kids choose, it can be a great way to start teaching them about how to look after money and how to spend it.
A Junior ISA (JISA) is available to anyone under 18 and cash JISAs can offer higher interest rates than adult cash ISAs. JISAs can be opened by parents with children under 16 or by children themselves when they are 16 and 17.
In the current tax year, you can save or invest up to £9,000 in a JISA. You could choose a Cash JISA, a Stocks and Shares JISA (which invests the money, but remember the value of your investments can go down as well as up) or a combination of the two, and the money is locked away until your child reaches 18, after which it becomes theirs.
The key thing with any JISA is to start it as early as possible. This way, your child can make the most of any higher interest rates or returns before they reach 18 (at which point it turns into a regular ISA with potentially lower rates).
You won’t pay any tax on the interest a cash JISA makes either, or tax on capital gains or dividends (if it’s the stocks and shares version). A cash JISA can be good for growing money, thanks to compounding interest, which is the snowball effect of accumulating interest.
A pension for a child might seem strange, but it can be a great way to build a nest egg – and perhaps a chance to involve grandparents who may like to help, and who may have a greater understanding of how important a pension can be. Let’s face it, when your children eventually start working, saving for a pension probably won’t be at the top of their list! Starting now could really help them later on.
Children’s pensions are similar to adult ones in many ways (often investing in shares and attracting tax relief from the government). A Junior Self Invested Personal Pension (SIPP) is just like a regular SIPP, except that it’s managed on behalf of a child by a parent or legal guardian until they turn 18. After that, control of the pension passes to them, but the funds must remain in it until they reach 55.
Anyone can contribute into a Junior SIPP on behalf of a child, and the current allowance is £2,880 for the 2023/2024 tax year. Plus, this is topped up by the government, at 20% on the total gross amount contributed. This means that your actual contributions are effectively boosted by 25% to £3,660.
Premium Bonds can make a nice gift idea for children from parents or grandparents and bring a fun element through a monthly prize draw. They’re offered by National Savings & Investments (NS&I) and are backed by the Treasury. The minimum investment is £25, the maximum is £50,000 and bonds can be bought on behalf of children under 16.
Premium Bonds won’t earn any interest, but each pound of your investment will buy you a unique ‘bond number’ which is entered into the prize draw. This gives you (and, of course, millions of others) the chance to win monthly tax-free cash prizes from £25 up to £1 million. NS&I hands out around three million prizes every month. Although you might think there’s a zero chance of winning anything, there's a one in 24,000 chance of winning the lowest prize of £25 each month for each £1 bond number.
Whether you’re looking for more information on the right option for your children – or already have a savings plan in mind – seeking advice from a finance professional is a great place to start.
With all investing, capital is at risk. The value of investments can go down as well as up and you may get back less than you invested. Tax treatment depends on individual circumstances and may be subject to change in the future.
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