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hi, we have a 5 month old dd and have been given some money for her by relatives, we would also like to save some money and put it into an account for her each month, the idea being that when she reaches a certain age she could use it towards something big like university fees, a deposit on a house etc.

Does anyone have any advice about the best type of account for us to open for her? We don't want her to have access to the account until she is much older, and we don't want her to be able to use it as casual spending money, only to put it towards something like described above. Are there accounts where we would have control until a certain time, or is it best to have things in our (mine and dh's) name?

As well as this we obviously want our money to be working hardest wherever it is put, so would like an account with good interest etc. Once the money goes into the account we would not be planning on touching it for a couple of decades.

Any advice, recommendations would be greatly appreciated.

tia

First direct has an 8% savings account you can, put 300/month in it. Would have to be in your name though.

There are several options open to you and I'd suggest that you consider a combination rather than puting all the eggs in one basket.

- Cash Savings. These are available anywhere with varying amounts of interest offered depending on the terms. They'll be in your name, have varying degrees of accessiblity and, if you sign the forms stating your DD is a non-tax-payer, will not have interest taxed at source. Once the interest tips a certain level, however, you can be liable for tax.
- Long-term bonds. These tie up a lump sum for a set period of time and often mean better interest rates than savings accounts. Can be set up for children as non-tax-payers but in the name of the parent. Ideal for legacies rather than regular savings
- 'Junior ISA'. The money invested (either lump sum or regular payment) goes into a cash or stocks and shares ISA, is in the child's name and can only be accessed when they are 18. £3600/year limit. Riskier than savings when linked to stock-market performance but have the potential to perform better than cash deposits. Grandparents and others can contribute towards these.

There are other investment options such as Unit Trusts, Premium Bonds, Index linked savings bonds, Share Certificates...

oooh good thread, i want to know this too so will keep an eye on this!

Keep in mind that with a Junior ISA, the child can opt to manage the account at 16 and take it all out to spend it as they wish at 18 and there would be nothing you could do about it.

But that's the same with any saving or investment product taken out in a child's name assuming they know it exists, of course. The OP could choose to take out an investment in their own name, not get any of the tax advantages and hide it from their child in a very controlling fashion. More realistically, they have 16-18 years to educate their child about sensible ways to spend the money that has been put aside on their behalf and then trust that they take the advice.

is there any way you can do it so that it's in their name but you can set an age at which they're allowed it?

That involves putting money in trust, appointing trustees and stipulating an age at which it can be accessed. Often goes with will-making or it's set up post an inheritance when very large sums are involved and you'd like the young person to benefit from the legacy in a managed way but have chance to mature financially before getting their hands on all of it

When it comes to cash deposits and investments, most financial insitutions are happy for parents to stay in control up to age 16/18 but then control passes over automatically. Whilst most of us are nice people that wouldn't swindle their own family, I know a few too many that would try to use 'investing for the children' as a tax-dodge or - worse - spend it rather than hand it over.

hmmm.

i suppose i could potentially have one open in the children's names but just not tell them about it?

obviously I will hopefully bring my children up well, but I dread the thought that they could get involved in drugs etc and then get a massive lump of cash at 18....

Oh share certificates, I'd forgotten that option. My grandparents gave me shares for my 18th and 21st birthdays. Without really knowing how much, our what they're worth, it's been great getting an extra £ 30- 40 a year, just like another birthday present.

I know what you mean thisisyesterday. Also hassle factor - e.g. dd has some money in a fixed rate bond in her name (she's 2) - when that finishes how easy is it going to be for me to move it elsewhere?

If you feel like that thisisyesterday, then you're better off letting your children fend for themselves, keeping your cash close and only giving them any if you 100% approve of their lifestyle and spending plans. I have a DM like that, unfortunately. As a young woman I lost count of the times when I could have done with some financial help but it was withheld unless I toed the line. Now I don't need it, it's offered..... so I tell her to shove it.

@SmileItsSunny... Assuming it was you that took out the bond for your DD in the first place it's quite easy then for you to decide what happens next when it matures. I've just cashed up some of DS's savings and bought him two different long-term bonds, had to provide his birth certificate as ID, but it wasn't that difficult.

Thank you for the replies. Dh and I have been talking about which name to put it in. Both of us have known people when growing up who knew they had x thousands of pounds coming to them when they reached x age, and we both feel that it could make you a bit expectant of the money and possibly not try as hard to get things on your own first, (like you are 'entitled' to this money rather than it being a lovely thing your parents have done for you).

Both of us have been helped out by our parents though. We think, on reflection, we would rather have the money in our name for her, then when the appropriate time comes when she is struggling to get to uni/get a house/start a business/have a dream wedding/learn to drive/whatever we can use her money to help her out. I know that might seem controlling to some but I think it would work for us.

Possibly I could open her a little instant access account in her name to put in the gifts from relatives and for her to save pocket money/birthday money when she's older, but have a savings account in our name for our savings for her future. I'm going to check out the first direct one.

Also I'd hate to go on to have more dcs and not be able to put as much money in second or third time around if I did accounts in their names. I think I would rather have it all in one pot to share out equally.

I'm glad I started this thread, the comments here have really got me thinking, I may yet change my mind!

By the way, I'm not trying to suggest that anyone who has been given a known sum of money at a particular age is entitled or ungrateful, I don't want to cause a fight! This is just how dh and I thought it might be possible to feel if we were in that situation. I would have loved it at the time but looking back I don't think I would have been ready for the responsibility of a big lump sum at 16 or 18, or have used it in the wisest way. I only feel like I would use it sensibly now, at 30, really.

I am always a bit wary of things linked to stock Market performance, probably unnecessarily as I don't know much about it, but weren't people sold mortgages that then left them vastly out of pocket due to the stock Market not going as expected?

Disclaimer - I don't know much about the details of this and the above might be wrong.

I looked at one such account and it did have a warning that there is a risk you may not get out as much as you put in. That would be awful!

Not a mortgage I mean I looked at a children's account linked to the stock market.

The mortgages that were missold involved endowment policies - combination of investment and life insureance. The customer paid interest only on the mortgage, plus an amount into an endowment policy, with the objective that the endowment would mature, pay off the capital and give them shedloads of cash on top.... what could possibly go wrong!?

Investing in the stock market is riskier in financial terms. i.e. your investment can go down as well as up. However, when investing long-term for things like pensions or college funds, the short-term ups and downs can get ironed out and, if you're lucky, end up considerably more 'up' than a safe as houses savings account paying next to no interest and not keeping up with inflation. That's why combining various options tends to be better.

Do let your daughter have a savings account for gifts etc., because it's a very good springboard for children to start to understand about personal finance when they can see their own money earning interest or they have to save up for something special.

Should add.... the people selling endowment policies at the time were using some very big growth estimates for their performance forecasts. The policies, in reality, didn't do all that badly... just not as well as was promised.

Yes I agree that she should have an account that is under her control. She hasn't been given loads and loads, about a hundred pounds - which is a lot of money for a child to have. As she gets older I can explain to her that it is hers, that the longer she keeps it the more money the bank will give her for letting them borrow it, and that if she really wanted or needed something when she got older she could keep adding to it and watch her savings grow. Or she could blow it all on toys and sweets and learn the way I did hard way

Thanks cogito for explaining that mortgage thing a bit better for me. I suppose that illustrates why it is important to actually know how these things work, rather than relying on the advice of someone who is trying to sell something to you.

cogito that's a bit mean! all I said was I would hate for them, if they were into drugs or anything, to have access to a large amount of money that could end up killing them

that's hardly the same as not letting them have anything ever unless they do exactly what I say is it?

I'd be happy to put money away for them to have at maybe 21 or 25... when they're a bit more sensible,.
I know at 18 I would have totally wasted any money I'd had

If my kids need money growing up and I have it then I would gladly lend/give it to them, I'm just not totally happy with the thought of them having thousands to waste when they are still teenagers, especially if I have made a great effort to save it up for them

sunshineoutdoors... don't forget she will also have her CTF which she can access at 18... even if you don't add anything to it it will leave her with a small amount she can do as she wants with,.

mine will still have a savings account in their name for little bits and pieces of money. in fact, that is where their money is right now, but I feel that I ought to be doing something better with it while they're small so they get maximum benefit when they'r eolder

She won't have a CTF. Only children born between Sep 2002 and Dec 2010 will have a CTF. She will be eligible for a Junior ISA though, while children who got CTFs are not.

ohh ok, didn't realised they'd stopped doing them.

There is a big difference in taxation repercussions on savings if you give her the money or if she is given it by someone other than parents. On money given to her by a parent she can only earn up to £100 interest per year. If she earns more than £100, the whole lot is taxed at the parent's rate.

Sunshine - setting up a trust is an option you might like to consider here. You and your DH could be the trustees (and thus have everything in your names) and your daughter could be the/a beneficiary. The trust could be structured either so as to create an entitlement at a particular age (18, 20, 25, 30, whatever) or it could contain no absolute entitlement at all - i.e. distributions would be a matter for the discretion of the trustees.

sunshine have you chosen an account? I've been going round in circles, all I want it a decent rate and online access without the need to "diarise and switch" a la martin lewis every other year!

Not yet, being very slack! I know what you mean about Martin Lewis, do this 6% account for a year but then swap to this one and keep looking around.... We don't have very much spare money atm, poss £50 a month, it doesn't seem worth the hassle for the amount of interest we would earn for a year.

I was thinking about an account with a local bank that we can walk to and dd can deposit cheques and money when she's older - this would be for gifts and pocket money.

Still not sure about our savings for her yet.... the trust sounds interesting, but again I like the option to possibly split it between more dcs if they come along, so maybe a high interest in our names is best. Looking at fixed rate 5 years at the mo, don't know if I'd regret the rate being fixed or not...

The search continues...

Glad you understood what I meant! I went and did an account with northern rock and then realised it wasn't online access, just assumed it would be.

This is interesting, I am not sure what to do. We have been putting some money into our daughters CTF every month for the last eight years but I want to stop that and put the money elsewhere. Firstly because I don't want to put all eggs in one basket and secondly I don't want her to have the whole lot to spend at 18 as myself, my sister and brother were given some inheritance at 18 and whilst I spent mine wisely my sister and brother did not spend theirs wisely and could have really done with the money a couple of years later. I figure that my daughter will get a decent sum at 18 with the CTF but we can put the next 10 years' worth of money into something else. So if she can't have a Junior ISA what should we have? Both myself and my husband are 40% tax payers so I don't want something she would be taxed at that level - any ideas? Thanks

if you set up a trust do you get a good rate of interest?

A trust or trust fund is just a way of designating capital/cash/assets in favour of a particular person to receive at a future date. The rate of interest depends on how well or badly the cash is invested. There are many financial products with 'trust' in the title... investment trusts, unit trusts, child trust funds.... and they have varying properties.

Thanks cogito that's reassuring.

On the subject of a second child. Don't think that if you commit £x/month to DC#1 you have to stick with that ad infinitum. I have one DS and over the years I've put aside anything from £20/month to £100/month in various investments for him depending on how healthy my finances have been at the time. If there had been more children I'd have just adjusted the monthly numbers so they got an equal share of whatever was available.

I had this dilemma - I wanted to save for DS (university fees, deposit for a house whatever that might be) but didn't want him to have a huge sum of money in his name to 'blow' when he was 18.

I have an ISA in my name where I save monthly for him and also add any money from birthday presents etc. It generates a decent rate of interest and I could access it in case of an emergency but to all intents and purposes DH and I talk about it as "DS's account".

He does also have a CTF that I pay a very small amount into every month. When he's 18 and has access to it he can do what he wants with the money - hopefully there will be a few thousand - enough to travel or have fun with as long as he doesn't buy a motorbike

He does also have some money from his GPs in a Child Trust Bond that I think matures when he is 7 and I'll worry about what we do with that in a few years!!

To address Spamspamspam's question, a bare trust is a way of holding investments in your child's name. They are the legal owner and can take ownership from 18 (if you tell them about it ), and as long as you choose non-income-producing assets you will avoid the £100 rule mentioned above and any capital gains will be treated as your DD's and only taxable a) when she cashes in the investment and b) only then if they exceed her annual capital gains tax allowance, currently £10,600.

I'm not a financial adviser but I'd say to all those considering investing over 10 years plus, it's definitely worth considering a shares-based investment (that includes unit trusts/OEICs and investment trusts). There are plenty of these packaged as children's investments (the likes of F&C, Baillie Gifford and Witan do them) where you can set up a bare trust at no extra cost at the same time as setting up the investment. I think you can invest from as little as £25 a month in these.

Yes, the value of shares can fall as well as rise and past performance isn't a guide to the future, but over longer periods the record of rises is very good. There's an annual study by Barclays Capital that goes back to 1899. Last year's edition showed that if you look at any 18-year holding period from 1899 to 2010, in 99% of cases, shares had done better than cash after adjusting for inflation.

Speaking of Martin Lewis, there are quite a few helpful threads on MSE about investing for children.

Just want to add a note to keep in mind of when you decide where to invest that money.

Please remember that inflation in UK was 5% in 2011. It is expected to be about 4% in 2012. The inflation outlook for UK will still be relatively high over the next 4 to 5 years. So if you invest the money on things where the expected return is lower than inflation, then you are essentially losing your savings. Notice how your heating / transportation bills keep going higher when your family income is basically staying the same? There are certain type of bonds you can buy to prevent that. Just another thing to talk to your financial advisor about ..

For Dd1 I have a Child trust fund which she has to have at 18. Then I have a 90 day Isa for when she is older and gets married/house deposit etc.

For DD2 born in a few weeks I am having a Junior Isa for her to have at 18. Then a 90 day Isa for when she is older.

I have a unit trust for DS1 but it is losing money - every time I have a statement it is worth less! It has 9 years to run - wouldn't I be better putting the money into an 8% interest account instead?
DS2 and DD1 both have CTFs as well as children's savers for gift money. They all have 2 accounts each - frankly I need to be an accountant to manage it all!

Our financial adviser organised us a Junior ISA through a company called Transact. I think they were one of the first to offer a junior ISA and they also can help your adviser to set up a trust so that the money does not automatically go to the child when they reach 18 which was one of our worries. If you have an adviser they can get more info here: www.transact-online.co.uk.

I'm putting money aside for our DD but I won't be giving it to her just because she turns 18. She'll get it when I think she is ready to be responsible with it. I was hopeless with money as a teenager and it's only recently that I am getting better (nearly 25 now). My mum had the sense to invest the inheritance money from my granda who died 18 years ago. It's turned £300 into just over £2000 and because I'm getting it now instead of when I was 18, it won't be spent on crap.