They say our children our the greatest asset that we will ever possess. Therefore it is no wonder that we protect and value them so highly. Investing in our children’s futures can be a way of ensuring that they have some financial security as they enter their adult life. You may want to help finance their education or help them with driving lessons or even a deposit on their first home. No matter what the reason, it is important that you choose the right savings method and get the most for your money.
Saving for your child
As you are likely to be saving over a period of time, you could be rewarded a fruitful return on your investments. Therefore it is important to research the different options available and work out which will be best for your situation. For example, if you choose a savings account with an interest rate of 3% and put away £50 a month for your child until their 18th birthday, you could see a return of around £14,000.
Adults can act as signatories on their children’s accounts until they reach the age of 16. The income tax threshold for children’s savings for 2011/12 was £7475. However it is important to be aware that as a parent if the money you give your child earns more than £100 interest per year, it will be taxable as your own. On typical interest rates, you may be able to save around £3000 before this affects you. The £100 rule applies to each parent individually but does not affect money given to the child by grandparents or other relatives.
Types of accounts
There are a number of different options available when it comes saving up for your child. Some are easy access, flexible options which require little commitment and give you the opportunity to deposit money on an ‘as and when’ basis.
There are also a number of bonds options which involve essentially locking away some money for your children for a set period of time. These tend to offer competitive rates of interest to reward you for your commitment. Often bonds accounts do not offer you the option to make withdrawals or charge penalties when you do. There are a number of child bonds options which offer a guaranteed tax lump sum at the end of the period, some offering bonuses along the way.
Trust funds for Children
The UK Child Trust Fund (CTF) is a long-term saving scheme for children born between 1st September 2002 and 2nd January 2011. It was set up as a method of allowing parents and other contributories to save for children in a tax-efficient manner. The HMRC sent through a child trust fund voucher between £50 and £250 which could be used to open the account in a government-approved CTF account provider. All money deposited in the account belongs to the child and is made accessible to them on their 16th birthday.
Junior ISAs are a possible option for children who are not entitled to the Child Trust Fund. It works similarly to the standard ISA account. Anyone can put money into the account and your child can earn up to £3,600 each tax year. No tax will be charged on the income or profit on the Junior ISA.
For those under the age of 16, the account must be opened by parent or responsible adult – all the money in the Junior ISA belongs to the child however this cannot be accessed until they turn 18. Most banks, building societies and financial establishments offer Junior ISA accounts.
Other child savings options
In addition to these options, there are a wide range of other child savings accounts and fixed rate bonds options which may suit your requirements. Private child trust funds could also help you to secure money or assets for your child. It is important to research the market in order to find the offering that works best for you. Seeking impartial savings advice from an expert in the field may help you to decide on the best bonds or child savings account option to help secure your child’s future.