Helping your child to fund university or buy their first home might seem impossible, but start saving early and by the time they’re 18 you could’ve saved thousands of pounds.
Some of the best investments are realised over time, and what better time to start saving for your child’s future than when they’re young. Regularly putting money away each month could return a nice little nest egg for them in years to come - of almost £40,000 according to The Sun.
It’s a long-term commitment and you choose how much to save each month. We’ve looked at some of the options available based on a saving of £100 a month.
Note – this article should not be taken as financial advice but is for information only. Remember to do your own research before choosing the right saving option for you.
Junior Individual Savings Account (JISA)
If you’re happy to lock the money away in return for a higher interest rate then a JISA might be for you.
JISAs work in a similar way to ISAs - they’re tax-free savings accounts and you can get a cash JISA or a stocks and shares JISA. On behalf of your child, you’re able to invest up to £9,000 per tax year. The money automatically becomes your child's, although they won’t be able to withdraw money from it (and neither will you) until they are eighteen.
Cash JISAs have the lowest returns as they’re risk-free. The typical interest rate is around 2% for a cash JISA meaning after eighteen years of investing £100 a month, you’d have saved £25,974.
But if you get a 6% return on your money with a stocks and shares JISA, investing £100 a month for eighteen years would provide your child a nice sum of £38,735.32. Remember that there is no guarantee that your JISA will earn 6% a year, and returns on your money can go down as well as up with a stocks and shares Junior ISA.
See how much you could save with this online savings calculator.
Put the money under the mattress
While we’re not suggesting that you actually put your savings under the mattress, you might put it somewhere that returns no interest, such as a 0% interest bank account, or even a piggy bank at home. If this was the case, saving £100 every month for eighteen years would add up to £21,600. A nice sum, but how can you make your money work harder?
Premium Bonds are a good way of putting some money aside each month for a child, and hopefully you’ll win some tax-free cash prizes along the way. Although winning isn’t guaranteed and you won’t earn interest, your money is protected and you’re able to access it any time if you need to. Checking to see if you’ve won anything each month is an exciting way of saving your money, but don’t rely on winning the jackpot.
You can buy premium bonds for children under the age of 16. When they turn 16 the bonds will be placed into their name.
Open a children’s savings account
Choose to put the savings into a bank account designed for children and you’ll earn some interest. Children’s accounts get converted into adult accounts once the child turns eighteen.
It pays to shop around, but Barclays currently pay 1.50% (before tax is taken off) on their child’s instant access savings account - on balances from £1 up to £10,000. After £10,000 the interest rate drops to 0.01%.
Halifax pays 1.00% interest (gross variable) on balances in their Junior Savings Accounts of up to £5,000 and 0.01% on balances higher than this.
After eighteen years, you’d have saved £23,775 in Barclays and £22,521 with Halifax. It would be worth thinking about opening more than one account to spread the savings around and take advantage of the higher interest rates.
Start their pension
If you’re thinking even longer term, then you could start saving for your child’s retirement before they’ve even started school. You can contribute anything from £20 a month to a Junior SIPP (Self Invested Personal Pension) - up to £2,880 for the tax year 2021/22. The government will add 25% on top, so it could be topped up to £3,600 in total.
Your child will be passed the pension when they’re eighteen but the money will remain locked away until they’re at retirement age (normally 55).
However you choose to save for your child, consider how much you can afford each month and for how long. You’ll need to decide if you’re happy to have the money locked away for many years, or whether you’d prefer an option that gives you access to the cash should you need it.
When you’ve decided on the best option, shop around to get the best deal and look at opening more than one account to make the most of higher interest rates.
Remember to do your own research and get independent financial advice before making any decisions.
Want to get your little one started early? Find out how to teach your children about money.
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