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Investing in your child’s future has never been more important. With costs of living rising, and owning property and paying for a university education becoming increasingly out of reach for many, children whose families have put them on the first rung of the ladder have a clear advantage.
Whether you’re hoping to get them through university, save a house deposit for them, or set them up with a car and a bit of cash to get started in the world of work, a lump sum of around £30,000 at 18 (or whenever you deem them to be responsible enough to deal with it) is a brilliant start.
It’s enough to cover three years’ of tuition fees in the UK, put a generous deposit down on a flat, or buy a decent car and a few bits of furniture to get them started.
You might want to aim for even more or that might be too much of a stretch. The important thing is to set a goal that feels doable. Work out how long you have in months until your child will need access to the money, how much you want to save in total and then divide the one by the other.
If the figures don’t add up, you might have to rethink your plan. But remember: lots of financial products are flexible and allow you to overpay some months and underpay others. Just make sure you’re saving regularly.
As with everything in life, the earlier you start, the better, but it’s never too late to make a difference, even if your children are already teenagers. You just need to know where best to channel your efforts.
From bonds for babies to trust funds for teens, there will be something out there to help you start saving, and it’s also a great way to teach your child about the importance of saving too.
There’s a wealth (excuse the pun) of financial products on the market aimed at helping parents to save for their children’s futures. We’ve scoured the Mumsnet forums and taken recommendations and advice from real parents, as well as from experts in the field, and collated some tips on how best to invest in your child’s future.
1. Open a Junior Savings Account
Helping your child to open a bank or building society account of their own is a great way to start them off on their savings journey.
These types of accounts usually provide instant access so, if you decide to let your child buy a new bike or use some of the money for an expensive school trip, you have a bit of flexibility.
The fact that Junior Savings Accounts are instant access makes it easier to involve your child with putting money in and withdrawing it in cash. Banks often offer savings books and statements as well as incentives to save, all of which appeal to young savers and help get them into the habit of checking their account and putting money away regularly.
The downside is that, if you’re serious about saving, instant-access savings accounts usually don’t offer the highest of interest rates. Look at fixed-term accounts or a Junior ISA if you want to maximise your money.
Consumer watchdog Which? points out that children’s bank accounts often come with lots of caveats so it pays to research them thoroughly before signing up. They have a handy guide to the best children’s savings accounts, which has all that information you need.
“We have a mixture of savings in the children's names with a smaller amount in (will probably be around £3k by the time they can access) and I'm comfortable with them having access to that.” CarolinaWeeper
2. Get a Junior ISA
Junior ISAs are a tax-free way of saving for under-18s. They were introduced in 2011 to replace the Child Trust Funds (see below) and are a great way of saving in the long-term as the money can’t be accessed until your child is 18. So, for anyone who hasn’t spotted the potential downside there, this does mean they could go out and buy a motorbike (or thousands of pounds’ worth of make-up) if they wanted to.
If you’re pretty confident they will be sensible with the money though, JISAs are a good bet. You can invest in cash ISAs or stocks and shares ISAs. In both cases, the interest or profits made are tax-free.
Which one you go for depends on a few issues, such as your attitude to risk. Martin Lewis says in his guide to JISAs that the age of your child should also be a deciding factor. It’s worth knowing that you can convert an old Child Trust Fund into a JISA, and they sometimes have better rates than the Child Trust Funds too.
OneFamily has a Junior ISA, which they suggest adding to with the help of family and friends, who may also want to help provide for your child’s future.
“Get a stocks and shares Junior ISA. My children’s [accounts] are running at 25%. 25%!” NewYearOldYou
3. ...then set them on the right road with a Lifetime ISA
When their JISA expires at 18, many young people won’t yet be in a position to use the cash wisely. Encouraging them to reinvest the money in a Lifetime ISA is a great way to really grow their savings.
For every £4,000 they pay in, the Government puts in £1,000. Lifetime ISAs can be opened up to the age of 40 and you can pay into them until you are 50, and are only intended for the purpose of buying your first home or helping with the cost of retirement.
To give you an idea, if your child invested the full amount each year from age 18 to 28, they should have around £50,000.
4. Locate their Child Trust Fund
These long-term savings vehicles were opened for children born between 1 September 2002 and 2 January 2011. The scheme then closed and was replaced by Junior ISAs, but you have to set those up yourself. The real boon of Child Trust Funds (CTFs) was that they were set up for you.
You can pay up to £9,000 a year into a CTF tax-free, and the child gets access to it at 18. If you think your child was born at the right time to have a CTF, but you’ve never done anything with it, you can search for it on the gov.uk website and start paying in now.
Or you can move your child’s money and reinvest it in a different CTF if you like. OneFamily has a simple-to-use Child Trust Fund that can be set up in no time at all.
You can also convert a CTF into a JISA if you prefer, which can be worth doing as they sometimes offer better rates.
5. Explore a Children’s Pension
It might sound very early to be thinking about this, but it’s never too soon to start saving for retirement, and giving your child’s pension an early kickstart can make an enormous difference to the pot they will receive on retirement.
It will also help shore them up against any future gaps in their pension contributions, such as career breaks to have children, study or travel.
Junior SIPPs (self-invested personal pensions) are tax-efficient, being eligible for 20% tax relief, just like an adult pension. Obviously, like an adult pension, you can lose money as well as make it, but over a long period of time, it usually works out. And, as with adult pensions, the money can’t be accessed until your child is 55, so it really is a long-term investment.
If you’re worried about your child frittering any savings away in the first flush of youth, this is one way round it that they’ll definitely thank you for later.
“Definitely worth it. We started stakeholder pension funds for our teenage children when they were introduced, paying in £60 per month each. You do get tax relief. We stopped paying into the pensions once they started full-time employment with employer pensions. Their personal pension funds increase by approximately £1,800 per year even though they haven't had money paid in for a long time.” easedale
6. Consider Premium Bonds
National Savings and Investments Premium Bonds are a fun way to encourage your children to save. They can own bonds in their name, but you are in charge of these bonds and you can buy as few as £25 worth to begin with so it needn’t be a huge investment.
Premium Bonds work as a fixed-term savings account for five years, and there are penalties if you take your money out any earlier than that. The rates aren’t amazing but really no worse than any bog-standard stock savings account at the moment, and there’s the added excitement that, each month, your bonds might be drawn and win your child a lump sum of between £25 and a cool million!
You can find out more about investing in premium bonds on NS&I’s website.
“Premium Bonds. You can set up a minimum standard order for £25. They will be in your children's names but you as the guardian of them. Alternatively, put them in your name and divvy it up later.” XXX5
7. Keep clandestine savings in your name
Sometimes the simple solution is what you need. If you’re worried that your child might disappear to Barbados for three months with money you’d intended to help them get on the property ladder, or you just aren’t quite sure whether you might need to claw some of the money back at some point, you can always start a savings account in your name somewhere that you know is earmarked for the kids.
If you need to dip into it, you can do so without guilt and put the cash back in at a later date, and you can decide for yourself when you think your child is old enough and responsible enough to handle the money.
You can check out some of the top-rated regular savings accounts on the Money Saving Expert website.
“I'd say save [it] in an account in your name which you privately earmark for the children. This has two benefits: a) If you need the money you can access it, and b) You don't have to give it to them at 18. You can hang on to it until you think the time is right.” TeenPlusTwenties
Expert advice on financial planning for your child’s future
We’ve partnered with child and family savings expert Nici Audhlam-Gardiner to answer parents’ most commonly asked questions about how to plan financially for their children’s futures.
“Am I better off saving for the children in ISAs in mine and my husband’s names? This would let us keep control of the money.”
It's worth knowing that, at age 18, it isn't an automatic cheque that gets sent to the maturing teen. The money stays in a continuation account until a decision is made on what to do with it.
In terms of saving in an ISA of your own to give to your child, depending on the amount you plan to give and over what time, that money could be subject to inheritance tax rules.
Any money invested in a child’s name will normally be treated as a gift to the child at that point and start the clock running for IHT purposes meaning that, after seven years, the money becomes the child’s and outside the donor’s estate – although if the gift is out of earned income, it will be outside the estate immediately.
Also if you die and the money is in your ISA, your child won’t be able to access the money until your estate is wound up, which could be some time.
"How do I help to ensure my children can save for a property?”
The simplest way to help your child save for their property is to invest in a Junior ISA while they are under 18, and then for them to mature that Junior ISA into a Lifetime ISA when they reach 18.
By transitioning from a JISA to a LISA, the money remains untaxed, and the LISA also offers an additional bonus, with the government paying in an extra £1 for every £4 saved (up to a maximum £1,000 bonus per year).
The LISA helps keep focus on the savings goal, because the money can only be used for purchasing a house or retirement. There is a penalty to pay if the money is used for anything else.
“How can I encourage the kids to be interested in budgeting and saving and what is the right age range to be working on this?”
It's never too early to start with your kids. When they are very young, basic numeracy is the best starting point. Counting, adding, taking away.
As they get older, there are many teachable moments if you can expose them to your own savings plans, budgeting, etc.
“What is your number one tip for anyone wanting to start saving for their children's future?"
With saving, the earlier you start the better, but it’s never too late. Even the smallest amount saved regularly, thanks to compound interest, can result in good returns.
So, my number one tip is: however small the amount you can put to one side is, make it consistent and over time it will be a useful amount.
“I want to start an account or investment for my six-month-old baby that she can use later in life. What is the best way to go about this?”
A Junior ISA (JISA) is the simplest way to invest money that your daughter can get access to when she turns 18, all those years away. The JISA is a tax-free wrapper, so she won't lose any of the interest she gains to the tax man.
In fact, because the maturity date for your daughter's investment will be so far away, she's a perfect candidate to invest in stocks and shares. These investments can go down as well as up so your child may get back less than has been put in.
But in every 18-year period over the last 50 years, stocks and shares have grown more than cash accounts (where money is protected). That finding comes from a Barclays study in March 2020.
“What guidance can you give to parents of disabled children who won't have mental capacity? What are the options post-16 and post-18?”
For young people who lack mental capacity, accessing their savings is not a simple process. Under current legislation, parents and carers need to make an application to the Court of Protection, which can be time-consuming and requires the completion of a lot of paperwork.
The savings and investment industry recognised that, for smaller amounts, such as Child Trust Funds, this process was unnecessarily complex and has lobbied the Government for a simpler solution. As a result, the Government has recently completed a consultation on its proposed Small Payments Scheme, which is looking to better support parents and carers in accessing the young person's funds.
The results of this consultation will be known later this year and we are hopeful that it will make the process easier to navigate. However, in the meantime, many financial companies, such as OneFamily, have put their own procedures in place to make life easier. So a good starting point would be to contact your provider to find out how they can help you.
“Should we all be encouraged to start pensions for our children from a very young age?”
It's never too early to consider pensions. Pensions you can set up for children present an alternative to Junior ISAs. They also attract tax relief, and have a separate allowance to the JISA allowance. The allowance for a Junior Self-Invested Personal Pension (SIPP) is £3,600 versus the £9,000 for Junior ISAs.
Your child won't be able to access the money until they are 55, and that’s likely to go up over time. They can take control of where the money is invested from 18. They aren't useful in terms of helping with a house deposit or university, so while thinking about retirement you might also want to think about what they will need between now and then and split the investment. Of course, with 50 years of investment ahead, that's a long time to benefit from compound interest.
It’s also worth bearing in mind that tax rules and reliefs such as inheritance tax are likely to change between now and your child’s retirement. The amount they might get back when they’re ready to draw on their retirement savings is only a projection - it’s not guaranteed.
“We're a low income family with three kids and don't have tons of money to put away every month. What would your advice be for people like me?”
The best advice is to just start. That sum a month will soon add up. Depending on how old your children are, compound interest will have a chance to make that money really work for your children and give them something they can use when they need it.
How much should I be saving for university and when should I start? Please can you advise how families without significant savings can best prepare for further education?
Anything you can save now in a child's tax-free savings account, like a Junior ISA in the child's name, will give them access to the funds around university age (18). Besides saving little and often for university, the best preparation is teaching your child good financial sense and budgeting for when they are out in the world.
Where is the safest place to put money for a child? ISA, bank account or a Trust Fund?
There are two things to think about when talking about safety. One is the risk that you might not get back what you paid in or a good return – a bank account returns your balance but inflation eats value. An ISA can also be in cash but can invest in stocks and shares so its value will go down and up and, depending when you need to take money out, you might not get back what you hope, although it does have a chance to grow. A trust fund is like an ISA.
Secondly, you need to check your money is safe if the firm you give it to goes bust and can’t pay you back. All investments and cash accounts are covered by the FSCS up to £85k so if you have more than that then it’s wise to spread it around with more than one company that is covered by the scheme. Don’t be tempted by unregulated or overseas schemes unless you’re a very confident investor and you can do your own research.
"What is the best age for a parent to take out a funeral policy to prevent children being financially burdened in the future?"
It’s never too early to consider these things. Alongside life insurance, a funeral policy can be a way to ensure those we leave behind aren't burdened. Some funeral policies only become available after a certain age, but the minimum age you need to be is 18.
It will be a personal choice, weighing up the planned costs of a funeral, the length of the policy and total costs. Typically, the earlier you start the lower your monthly payments.
Consider whether you want something which is specifically to pay for funerals, or a broader protection for the family if you die (a life insurance) - the latter sometimes have a minimum age (often starting at 50 years old) and sometimes will come with an additional free funeral funding benefit as well as the main life insurance.
Consider if you will get good value as it may be better just to put some savings away for that purpose, especially if the long-term charges on the product mean you will pay a lot more in than the benefit your family receives.
“As a member-owned business, we are interested in helping create a better financial future for Britain’s young people. From providing accessible, easy to understand products to awarding education grants and giving extra support to customers who need it, we are focused on Inspiring Better Futures.”