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Saving For Your Childs Future – Our Top 5

It is a delight to be able to put aside some money for your children or grandchildren. But what are the options when looking at long term saving? We have looked around and come up with our top 5.

1 – Junior ISA

A really tax efficient way to save for a child. Up to £4,080 can be invested on a yearly basis in a Junior Cash ISA or Junior Stocks and Shares ISA. No tax is payable on any interest earned or on any capital growth or dividends reinvested.

Although the child has control of the JISA from the age of 16 they cannot access it until they reach the age of 18. Many think that 18 is too young to appreciate the money and therefore if this is a concern look at an alternative option.

2 – Savings Accounts

The starting point to a child’s savings starts with a savings account. An account can be opened in your name or your child’s name and you can pay in as much or as little as you please.

You could opt for a fixed rate (with fixed term interest) or a regular saver – where you are committed to paying a minimum amount each month, for the highest interest rates.

3 – National Savings & Investments

Children’s Bonds

NS&I offer fixed interest, tax free bonds each running for a 5 year term that can be rolled over at the end of the term until the child reaches the age of 16.

The minimum investment is £25 and the maximum is £3,000 per issue per child. The current issue is paying 2.50% (AER).

Parents, grandparents or great grandparents may open children’s bonds.

Premium Bonds

A parent or grandparent can buy Premium Bonds on behalf of a child, although the parent will always look after the Premium Bond – no matter who buys it.

The minimum purchase is £100.

Premium Bonds pay no interest, instead there is a monthly prize draw with prizes ranging for £25 – £1Million. As such there is no guarantee of any return although any prizes won are completely tax free.

4 – Unit Trusts & OEICS

For long term savings investing in a fund of stocks and shares may offer the best prospect of return. Although a child cannot hold the investment directly it may be opened on the child’s behalf (under a designated account). There are various options available and whenever market linked investments are considered advice should be sought to determine the underlying investments.

5 – Trusts

Money can be held under a trust for a child with the trustees managing the money until it becomes available to the child.

A trust is a legal arrangement and advice should be sought as to any implications for example, taxation, on the trust/donor.

There are various types of trust the most popular being:

Bare Trust – a simple trust where the trusts assets become available to the child when they reach 18.

Discretionary Trust –the trustees have the final say on how and when the trusts assets are distributed.

It may be that be that one of these options are more suitable than others, or perhaps a combination. We would recommend that you seek advice, especially if looking at stocks and shares savings, or trusts.

Saving for a child is a long-term investment. Please be aware that cash and cash-like investments are unlikely to keep pace with inflation in the long term – and may lose money in real terms; investing in stocks and shares, or unit trusts, may provide for the possibility of a capital loss – but also provide for the potential for long-term growth.

I am a Chartered Financial Planner specialising in pensions planning, QROPS and international pensions. I am also a Fellow of the Personal Finance Society and hold the Advanced Diploma in financial planning (APFS) with both G60 and AF3 Chartered Insurance Institute qualifications. And the Certificate in Investment Management.

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