Childrens savings - I am so stupid

[frogwatcher1]

I know that for some time now there has been a lot of talk about savers being poorer with interest rates being so low. However, as we have little in savings (and maybe because I am lazy) I have given it little thought.

Today I decided to investigate the best way to save for the dc future as they have a couple of thousand each in childrens bank accounts (from gifts when they were little) and I want to add a bit more, but I have just realised that the actual value of their savings is diminishing each year as interest is so low and inflation a lot higher. I know this is probably obvious but not to me until now!!!

Is it worth saving any more for them then? If so, does anybody have any recommendations ? From what I can see all of the Junior ISAs etc are running at very low interest (well significantly lower than inflation) and therefore is it not just a way of losing money?

I'm not the best financially (and we don't have a lot of money) so please don't flame me.

It depends if saving for your DCs is going to risk that you (as a family) go into debt.

We hit a point last year where we went into debt due to some unexpected expenses (washing machine went kaput, car had a puncture, etc etc) whilst the DCs' savings were quite substantial (but inaccessible). We decided it wasn't worth persisting with the DCs' savings whilst we couldn't make ends meet. (We have since got back on track.)

Speaking to friends and reading on here I have heard of lots of people saying they have had to use their DCs' savings to stay afloat at various points.

We do have Junior ISAs/CTFs and pensions for our young DCs but with interest so low are making minimum payments into them as the money is a) earning little interest for them and b) locked away until they are older. We are then paying a monthly amount into instant-access savings and if we need to dip into it to stay afloat, we will, otherwise at the end of the year that will get paid into their savings too (and some into ours!)

Could you maybe open a Junior ISA (before 5th April!) with the money you already have saved, and then put extra money aside into an accessible savings account for now?

I know lots of people probably won't condone it. But we are saving for DD in our own shares ISA. It's the same logic as Poppy that if things go wrong, then the money inside a Junior ISA is locked away from us. But if it's in our own ISA, then we can use it for family emergencies. I think it's a fair compromise because say if we lose our job, then she'd have to pay her own way through university.

As for you losing money in your Junior ISA. I assume you don't actually mean that? You actually still have slightly more money then you put in isn't it? I don't think any cash savings can beat inflation. But saving for it is still worth it as you won't be able to magic out, say, £20k when they turn 18, can you?

I decided to move the bulk of DS's cash savings into long-term bonds. Still not amazing interest rates but slightly better than savings accounts. I've also had a unit trust running for him for the last 13 years in which I buy varying amounts of units depending on what I can afford. Obviously it's higher risk, dropped like a stone in 2008 (!) but has recovered well since and I'm hoping the returns by the time he hits 18 are better than the cash.

The way I see it I'm already investing for myself, pay extra off the mortgage and contribute to a pension so where am I going to put this money otherwise?

Cogito what's the benefit in saving it in the child's name vs under your own name?

Thanks all for replying.

Onelittletoddler - no you are right. I don't mean actually lose the money as it will still be a little more than they have right now. But in real terms it loses value as it will buy less due to inflation being higher than the interest they get.

I wouldn't be-able to magic £10,000 out of thin air in 10 years time - that is certain. However, it still grates on me that my saving £10,000 between now and then, could theoretically but a car at some point in that time, but won't be worth enough to do so when they get it. It still feels as if by saving I am wasting my money.

I am even confusing myself with my replies!!

Please please can somebody explain to me (so I stop feeling so stressed about this) how saving is worth it if the interest doesn't keep up with inflation. I understand Toddlers point that it is a way of ensuring there is money available at some point in the future, but in real terms it is a way of ensuring that the money in your pocket now is worth less when you decide to use it. Isn't it?

We put our kids savings into bonds as the interest was best we could find. We tied it up for a year, we can get money out if we need to but the kids will lose all interest. Anything we put in to savings for them this year will be added to next years bond.

What is a bond and what rate of interest would be expected? Do you put them in the dc names? Do they pay tax on the interest?

Sorry for so many questions.

frogwatch - yes, savings rates are abysmal now, and the money is losing value in real terms.

however, what is the alternative? 1) Not saving at all, which means there will be no money at all. Or 2) Putting money into an alternative form of investment which may beat inflation, but will also be riskier.

We save in a stocks and shares Junior ISA/Children's Trust Funds (DC3 has the ISA, older ones the CTFs) - equities are more likely to beat inflation than cash savings, but also carry a higher risk. Over the long term (which children's savings are likely to be), equities tend to outperform savings rates.

Another option is to look at children's pensions - again, these will be linked to the stockmarket rather than to a cash savings rate, and with the long term prospect, have a good chance of growing considerably. Downside is that children can't touch them until they are retiring.

This is what we got but I'm pretty sure the rate of interest was 1% higher.

frogwatcher it is worth it if you have extra cash. If you have spent on the car, what would it be worth when your children are 18? I'm sure it's less than the cash you'd still have. You don't have to have a lot of money to make a difference. A friend got his first flat about 8 or 9 years ago with £8 deposit from her gran. It could be the first car so they can use it for their first job? Or the gap year they really wanted to do?

As others have said, many are saving in bonds, which have higher return than cash. I'm using a FTSE index tracker. It's currently posting pretty good annualised returns for me because FTSE 100 is over 6400. But obviously this goes up and down a lot and was really bad a couple of years ago.

yes, it may not be keeping up with inflation, but unless you buy ever christmas and birthday present, every stick of clothing and shoes they need now, so you don't need to save, what are you going to do when yuo need those things?

Some savings, even if not keeping up with inflation, are better than none (assuming your debt is paid off)

You could use the money to pay of the mortgagfe (assuming you have one), and then when that is paid off, start saving for the kids?

Saving in the childs name has tax advantages - ie tax free til they earn over a certain amount a year). if its in your name, and you pay tax, the savings will be taxed.

bedhopper - I am wondering if not saving at all is the answer. It would be different for me as we have always saved what we can but I hate the thought of such a loss in real terms if interest rates continue as they are.

I wonder about investment in jewellery or art or wine etc? But then that is a stupid thought as I wouldn't know where to start.

I think for people like me who save a little maybe not saving is the answer. It would be different if there was a lot of money floating around maybe.

Maybe I will look at equitites - I have never done that - have always taken a safe route!!

Nextphase - i agree that some savings are necessary and I have those. Enough for a rainy day.

It is the extra - the long term childrens saving that I feel so miserable about as it is likely to sit for so many years and if each year it loses in real terms then it takes quite a hit over 20 years?

It sounds as if I am being silly to worry really - everybody else seems quite confident and sure.

Thanks all.

OP, have you no mortgage to pay?

If you are worried about the cash losing value in real terms, you should pay off your mortgage first.

Even if you can save 5k for your child it could really help them. If you can afford to save it's worth it.

Investing in jewellery/art is a huge risk. I think I would only consider that if I could afford to lose he money I was investing.

I agree with Sugarbeach, putting savings into your mortgage can save a large amount of money in interest payments. Last year we overpayed a lump sum of our mortgage, the lump sum was worth almost double due to the amount of interest that was cut off!

The way I approach it (and someone please point out if I'm missing something) in order of priority for my spare cash is as follows....

Set up an emergency fund.
Pay off any credit card and loans.
Pay the mortgage off.

At least once the mortgage is paid, you own your home and you will continuously "save" in the future the amount you would have had to pay in rent or mortgage.

Sugar - mortgage will be paid off very soon as that is what i have concentrated any spare cash on until now. My thoughts are that the money from the mortgage payments each month could soon go towards childrens saving. However, theoretically the house will stay worth what we have paid plus more. The childrens savings won't in real terms so it feels more worrying.

But then I am no accountant and obviously am worrying too much!!

Agree with Sugarbeach.

We have been lucky enough to get a large redundancy payout (well DH has), and did consider the children's savings...but if we pay off as much mortgage as possible now, we will have an awful lot more money in the future. In the short term, our outgoings have been reduced by about £1k per month (our mortgage was massive), and I hope that if we keep going at the current rate, we should be able to pay off the mortgage, or have it at a very low level by the time the DSs are 18. We will then be able to fund university or whatever at that point.

I am not very mathematically minded, but paying off £1000 of mortage now, will save us paying something like £1800 in the long term (ie win of £800). Saving £1000 will mean that we get about £10 interest, and inflation erodes it - ie a loss. Therefore savings (other than immediate rainy day) are not a priority, paying off mortgage debt is.

Am also suspicious of putting money into CTF - they are starting to charge an annual fee in some cases. Or any form of savings that my DSs could spend on a porche at 18.

And the mortgage was little in the first place - rubbish house which was cheap!!!

Congratulations on being almost mortgage free, it's a big milestone....don't know how you could think of yourself as "stupid"....OK, in that case, I would be thinking about saving a big cash deposit to buy another house....if you don't like the sound of savings, stock/shares ISAs etc..

So...there you go....now I will definitely flamed on MN for encouraging greedy landlordness...

frogwatcher if you have never looked at equities before, start by looking at index trackers. They are the easiest to understand and have the lowest fees. Some well known cheap discount brokers are hargreaves lansdown and fidelity. But obviously don't buy into it unless you understand what you are buying! It's easier to understand than jewellery or fine art though!

Sugar - its a little scary - no idea why. My dh seems to have an attachment to the mortgage and doesn't want to pay the last little bit off.

I did consider saving for a deposit on another house and using that as savings for the children. However, life is getting more and more expensive - we are struggling now more than ever before and have been married 10 years plus. I don't know that we will save as fast as we have in the past as our income isn't huge at all - about high end of average - and at the moment life is tough. However, I still want to commit to the children's future if I can.

I think in conclusion I will investigate bonds, stocks and shares ISA. It will only be a little money but then like somebody said - anything is worth more than nothing.

Oh forgot to say DH said even if we don't save a lot, it could be driving lessons for DD

He didn't get his from his parents and learned much older than me. He'd always wished he has learned young.