Saving for child's future

[chewbacca83]

Hi everyone. A bit of advice needed. I have a 2 month old son. My parents and in-laws want to put some money into an account for him for either further education or house deposit so it needs to be in a trust or something that he can't access until at least 18 but preferably 21. I've looked on line but it seems that you can only buy bonds for a few years not long term and trusts were replaced by child ISAs. Does anyone know the best way to save for a child's future?

Also to add my husband and I want to add to it as well so that needs to be an option.

A child ISA- it can only be accessed by the child (ie not you) once they turn 18. (Hopefully you will have a sensible 18 year old!)

Thanks for the reply. Is a child ISA the only option these days? It's a worry isn't it, I know I wasn't terribly sensible when I was 18.

That's the same as the child trust funds were. Otherwise you can just open an account in your own name and keep it earmarked?

Premium bonds x

You can open an ISA for the child or you can open a children's account on their behalf which will be in your name because their so young. I have one with Halifax for DD (3 months) on a 1 year deal at about 4%. It's her account but all correspondence comes in my name and I have access to the account online.

I started saving for my child when a baby. 11 years later I wish I had put the savings in my own name, as now I suspect dc more likely to blow it on luxuries rather than use it for education.

I think if I had my time again I would instead put the money in an account in my name, earmarked for the child. The benefit of keeping it in the child's name are only relevant if your income from savings interest is massive, so basically only the extremely wealthy need to worry about that.

You can make an investment using a discretionary trust. Speak to an IFA (assuming it's an amount that would warrant this). If not put it in your name in an ISA.

This is a common question. Discretionary trusts can be expensive to set up and less tax efficient than ISAs. Unlikely to be worth it for small amounts.
www.gov.uk/trusts-taxes/trusts-and-income-tax

What is your tax situation? Roughly how much will you be contributing every year? Unless every year you already max out your ISA and capital gain allowance, and unless you plan on investing huge sums, keeping the account in your name might not be a bad idea after all.

Also bear in mind that, when the time horizon is so long, choosing very safe options (eg saving account instead of shares) is very likely not to keep up with inflation.

We went for a junior stocks and shares ISA. It is seemingly quite hard and expensive to lock away money past 18 now. You have to either trust that you can prepare them for coming into some money as a young adult or save in your own name (which may not be tax efficient depending on the amounts). If your parents and in-laws have estates that would be over the inheritance tax threshold then saving money into your children’s names make sense.

At 2 months of age, don’t just save in cash for your child. Inflation is a risk as a previous poster said earlier. Just run the numbers in a spreadsheet to see what £500 would be worth in 18 years time with modest inflation.

You need to think about what they invest in as well as the returns.

Check out these guys: www.abundanceinvestment.com

I'd also add that no one can be sure their children will be sensible with money. Many people think : "I am sensible, I am a good parent, my children will be sensible, too". WRONG! There are too many factors at play. Being a sensible parent helps but doesn't guarantee anything. The world is full of siblings brought up in the same family with the same values etc who turn out completely different, for example.

Depending on the tax situation of the OP, a compromise might be to put some money in an ISA and some in the OP's name, so if the child turns out to be a not all is lost!

Trusts are no more expensive to set up than any other investment (I do them all the time). However the tax implications are another matter. Clearly as ISA are a tax saving wrapper, any alternative is more expensive. You would use a SPIB in a Trust to mitigate most of it.

What's a SPIB?

Single Premium Investment Bond.

Unless you have a very (very) large trust (or an Abolute/Bare Trust which wouldn’t achieve what the OP wants) then this is the standard investment. Open architecture is preferable for obvious reasons, but not the only answer especially with smaller amounts.

I just don't plan on telling mine that the accounts exist until I feel they are mature enough not to blow it on crap.

Having said that, one policy is a 25yr one.

Are single premium investment bond still offered? By whom?
What do they invest in and what is the risk/return profile?
Are they suitable to invest a lump sum only, or also to invest a certain amount every month or every year?

Are single premium investment bond still offered?
Er yes. Standard investment product.

By whom?
All major life companies. Prudential. Old Mutual. LV. Canada life. Aegon etc etc

What do they invest in and what is the risk/return profile?

Well open architecture invest in exactly what you select - you use OEIC and UT’s to build them.
However Prudential as a life company can invest in things (upstream infrastructure projects for example) that OEICS can’t. You then get all asset classes in there.

Are they suitable to invest a lump sum only,

• yes you won’t get anyone to take anything other than £5k, usually 10k min.

or also to invest a certain amount every month

• no can do - clue is in the name

or every year

• yes as long as it meets minimum criteria

They enjoy special tax deferred status. They have their own tax rules. Great for IHT planning, Trusts, tax planning, school fee planning, flexibility and variety in large portfolios.

Thanks for all the advice. Sorry for the delay I've been at a funeral. It won't be huge sums of money. I'm aiming to save the child tax credits and top it up. There will be a few thousand from family in an initial lump sum. So perhaps splitting the savings across a child's shares ISA and a separate ISA in my name. I won't be saving over the threshold anytime soon!