Saving for your children

Saving for a child today is a wonderful gift for their future. Not only can they start their adult lives with some savings in hand, but getting kids involved early with saving also helps them learn important lessons about money. Here are some of the savings options for children that can help you start saving

• Children’s savings accounts and savings options for children
• Piggy bank
• Junior Cash or Stocks and Shares ISAs (sometimes called NISAs)
• Friendly Society tax-exempt plan
• Child Trust Fund accounts
• NS&I Premium bonds
• NS&I Children’s Bonds
• Child pensions

Children’s savings accounts and savings options for children

• You can set up an account with a bank or building society on behalf of a child. They can start managing their own account once they reach the age of seven.
• These accounts offer a great way to learn how to manage money and help get kids into the savings habit. And some providers will include a gift with the account, like a money box.
• Start an account with as little as £1 for any child aged up to 18.
• In some cases, your child can take out their money whenever they like.
• There are two main types of children’s savings accounts: easy or instant access, and regular savings.
• With an instant access account, you or your child can withdraw or deposit money at any time. Normally, you get a lower rate of interest than with other account types.
• Regular savings accounts are designed to encourage children to save an amount every month, and often run for a set amount of time, for example 12 months, and if you withdraw within that time the account might reduce the interest you’ll get. These accounts usually pay a higher rate of interest than instant and easy access accounts as a result.

Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.

We recommend the following websites for comparing savings accounts:

• Money Saving Expert
• Money Supermarket
• Which?

Remember:

• Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
• It is also important to do some research into the type of savings you want and the features it needs to have, for example if you want children to have to wait until a certain age before they can access the savings.
• Find out more in our guide to comparison sites.

Piggy bank

• A good idea for very young children where the key things they need to learn are that money is not a toy and that you need to keep it in a safe place.
• Help them understand the value of different coins and notes, and that bigger coins aren’t necessarily more valuable.
• It’s also a good chance to start giving your child regular pocket money, with a small responsibility attached like getting weekend treats. This will help them learn that you have to save up for what you want, that you have to make choices, and that when it’s gone, it’s gone.
• ·Keep in mind that the amount of pocket money doesn’t matter, it could be as small as 5p, because it’s the practice that’s really important. Don’t miss out the responsibility aspect because otherwise your child is at risk of simply collecting money, rather than developing an understanding of how money works.

Junior Cash or Stocks and Shares ISAs (sometimes called NISAs)

• If you want to open a Junior ISA for your child and they already have a Child Trust Fund, ask the provider to transfer the money from the Child Trust Fund into the Junior ISA.
• Cash ISAs can be a good savings option because your child will pay no tax on the interest they earn while Stocks and Shares ISAs are ‘tax-efficient’ because their investment is free from any liability to Capital Gains or Income tax.
• While a parent or guardian must open the account, the money belongs to the child. But they can only withdraw the money after turning 18.
• Each child can have one Junior Cash ISA and one Junior Stocks and Shares ISA during their childhood, but it is possible to transfer each to different providers.
• Junior Cash ISAs work the same way as a savings account, except that the interest is tax-free and the money is locked up until the child is 18.
• Junior Stocks and Shares ISAs let you buy shares, bonds and other eligible investments on behalf of a child. The value of these investments can go down as well as up.
• The Junior ISA limit is £4,260 for the 2018-19 tax year.
• If the child is aged 16 or 17, they can take out an (adult) cash ISA and save up to £20,000 a year, as well as up to £4,260 in a Junior ISA.

Read a transcript of this video

Friendly Society tax-exempt plan

• These children’s savings plans are only available through Friendly Societies. These are mutual benefit organisations, which means they’re owned by their members to work for the advantage of those members.
• You can choose to pay into the plan for between ten and 25 years.
• Money is invested in a share-based investment fund for the term length you choose. The maximum amount you can pay in is £270 a year, or £300 a year if you pay in £25 each month.
• On the maturity date, the child must be at least 16 and you must have paid into the plan for a minimum of ten years.
• The value of these types of investment can go down as well as up. Friendly Society policy charges also apply.
• As long as you continue to pay into the plan for a minimum of ten years, your child won’t pay Capital Gains and Income Tax on any gains or income.

Child Trust Fund accounts

Since April 2015, parents have been able to transfer savings from Child Trust Fund accounts to Junior ISAs.

If a child was born between 2002 and 2011, they might have a Child Trust Fund (CTF). These can be transferred into a Junior ISA.

If the CTF is not transferred, when a child reaches 18 they’ll still be able to access the money.

NS&I Premium bonds

• Unlike other savings or investments, where you earn interest or a regular dividend income, with Premium Bonds you’re entered into a monthly prize draw where you can win between £25 and £1 million tax free.
• On average, 1 in 3 people win a prize each year with a £1,000 investment.
• You can buy them for yourself or on behalf of your child, grandchild or great-grandchild.
• You must be aged at least 16 to purchase Premium Bonds.
• You’ll need to invest at least £100 (or £50 if you agree to put in money regularly by standing order).
• You can keep buying bonds for your child until you reach the maximum holding level of £50,000.
• You can give your child the responsibility of keeping their investment details safe and being involved in the decision about what to do with their money if they win.

NS&I Children’s Bonds

Children’s Bonds are no longer on sale. For more information on your options if your child has one maturing soon, please visit our page on Children’s Bonds.

Child pensions

Savings towards your child’s future retirement might not be the first thing you think of when considering the various saving options for your child. But, it does mean they’ll only be able to access this pension money when they’ re a far more sensible 55 years old.

• Any parent or legal guardian can set up a pension, and it will automatically transfer to your child once they reach 18. They can then start to contribute to it themselves.
• You could save up to £2,880 tax efficiently each tax year with the government automatically topping up any contribution by 25%. This means your contribution automatically becomes £3,600.
• Contributions over £2,880 in that year are still allowed but you won’t receive any additional contribution from the government.
• Any growth in your child pension like ISA’s is free of tax meaning that it can start to increase very quickly. Like any investment though, it can also go up as well as down.
• For example, assuming you invest the maximum over just 3 years of £8,640 (£10,800 including the government top up), assuming an average growth rate of 8% over 50 years, your Child pension could be worth £582,000 in 50 years with 25% taken as a tax-free lump sum.

This article is provided by the Money Advice Service.