Saving for your children

Encourage your children to start saving when they are young, and you'll be teaching them one of the most valuable money lessons they'll ever learn. As parents, you can make the most of your children's savings with a Junior ISA

Encourage them to start saving their own money

Most children's first experience with money is in the form of pocket money, or a Christmas or birthday present. Rather than letting them head straight to the shops, try to encourage them to save a pound or two each time.

Setting a savings goal is one of the best ways to encourage children to do this, so get them to think about what they'd like to put their money towards, and work out how long it might take them to achieve this target.

Explain to them that by putting money away in a savings account each month, they'll earn interest on their cash, which will help them reach their goal more quickly. Many children's accounts come with passbooks, so you can show them exactly how their money is growing over time.

Which children's account?

Plenty of children's accounts come with tempting freebies such as money boxes or wall charts, but remember that the interest rate is much more important than any of these.

Many children's accounts offer easy access, but often the highest rates are to be found on Junior ISA. Junior ISAs often require a monthly commitment, usually as little as £10, but some allow you to save with lump sums as and when you can afford it.

If you don't want to have to pay in a set amount each month, then several easy-access accounts can be opened with just £1 or more. However, always make sure you compare a range of different accounts, as interest rates can vary widely.

Longer term savings

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If you want to save for your child's future and don't want them to be able to access this money before the age of 18, then a Child Trust Fund or Junior Individual Savings Account (JISA) could be a good option for you.

Whether you can pay into a Child Trust Fund or Junior ISA depends on when your child was born. Children born between September 1 2002 and January 2 2011 are eligible for Child Trust Funds and Junior ISAs, but you cannot have both at the same time. Children born outside of these dates are only eligible for a Junior ISA.

Each tax year you can invest a certain amount into a Junior ISA or CTF. The tax-exempt allowance for the current tax year which runs from April 6 2018 to April 5 2019 is £4,260. This can either be invested in cash, stocks and shares, or a combination of the two.

However, whereas Junior ISA investors have a choice of thousands of different investment funds and cash accounts, the options for those with Child Trust Funds are much more limited. Your child cannot have both a CTF and a Junior ISA, and if a CTF is transferred the whole account must be transferred and the CTF provider must close the account. The CTF can be transferred to either a cash Junior ISA or a stocks and shares Junior ISA.

Bear in mind, that any money paid into either a CTF or Junior ISA will be held in your child's name, so it will be entirely up to them how they decide to spend the money once they reach the age of 18. They may choose to convert their Junior ISA to a Stocks and Shares ISA to continue saving instead.

Tax implications of saving for children

You can give your children as much money as you want to. However, if you are a parent or step parent and the money you give your child earns more than £100 in interest a year (or £200 if both parents contribute money), then all of the interest – not just that which exceeds the £100 threshold – will be taxed as if it were your own.

This doesn't apply to friends, relatives and grandparents, who can give the child as much as they like and returns will be tax-free, provided the interest earned does not exceed the child's personal allowance. The 2018-19 annual limit is £4,260.

However, any returns on money saved into a Junior ISA is not subject to the same rules. In fact, all money saved into a Junior ISA is considered tax-efficient, so this can often be the best way to protect your child's savings from tax.

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How to set up a Junior ISA

  • You will need your child's National Insurance Number (if they have one)
  • You will need your child's passport number, birth certificate number, or NHS medical number
  • You will need the account information of the account from which you wish to make regular payments
  • If your child was born between September 1 2002 and January 2 2011 they will have been subscribed to a Child Trust Fund by the government. You will need to switch their CTF to a Junior ISA rather than open a new account.

Shepherds Friendly Junior ISA

Opening a Junior ISA with Shepherds Friendly allows you to save flexibly through monthly payments – starting from just £10 – but if you prefer you can also save with one off lump sums, as and when you can afford it.

When you open the account, you can choose whether you'd like to make monthly Direct Debit payments or start with a single deposit.

When your child reaches age 18 they can choose to either continue saving by transferring their funds into an adult ISA or to withdraw the money.

It is important to consider that no investment is risk free, as your capital is at risk. Shepherds Friendly adopt a medium to low-risk investment strategy for their Junior ISAs which means your child’s money is less affected by short-term stock market fluctuations and will not lose or gain value on a day-to-day basis. Instead, they’ll aim to add an annual bonus at the end of each year, the value of which will depend on the performance of the fund during that year.

Start saving now

All references to taxation are to UK taxation and are based on Shepherds Friendly Society's understanding of current legislation and H M Revenue and Customs practice which may change in the future.

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