how to manage DC's savings

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My grandfather has left a large amount to my DC (£30k). DC is only 4 and I would like to put this money aside for their future use, and/ or for any unforeseen emergencies like extra medical support or educational support throughout their childhood. (So Junior ISA wouldn't work, as we as parents would still need access to the money).

We live within our means but have precious little savings - I've never had this much money in a bank account! I have looked into IFAs but they seem really expensive. Should I just stick it in a bank account and wait? Won't it depreciate in value? Is it possible to do anything else without going through an IFA?

thanks

It will depreciate! Can you look at putting it into a pension? It would be a good head start. But I'm saying that having done no homework. Whatever you do, don't leave it sitting in a savings account!

Thanks Jaxing - but if we put it in a pension does that mean we can't touch the money in an emergency?

As you can tell I know nothing about money!

Usually but depends on the pension. But I do think that's a good thing!

Sounds to me like you need to split it. Say 75%into long term savings. The rest into a junior isa, some of which are accessible. Speak to your own bank about what they can offer, then make an appointment with at least one other bank to compare.

Can you put it in Isa in your names two now and two next April

This is going to make me sound ridiculous but I don't understand how ISAs work - can you only put a certain amount in each year? But you can keep opening more and more ISAs each with the uppermost limit?

ISAs are tax free saving so not really of any use to children as children are not taxed on interest. But the ISAs might be good for when they reach adulthood if they don't spend them that is! The rates for ISAs are different all over the place so you need to find the best rate. Then they go to a shit rate after X time so you should move it but basically everyone has an ISA (tax free savings) allowance for each year and you can keep accumulating them each year if you wish to do so.

A pension? That could devalue and thus ends up worthless in years to come? I'm not sure that's a good idea.
Maybe you need some proper advice. From your bank, for starters?

Someone could advise you to : keep it altogether, or split it into 3 or 4 different areas, with easy access to some, others in ISA, an amount in pension.
Depending on your views, needs and risk wants.

Please don't do anything rash.

Thanks everyone. Will my bank charge me for advice, do you think?

Both an ISA and Pension are different tax wrappers for savings and investments.

In an ISA the money either sits in cash (earning a measly rate of interest) or can be invested in stocks & shares with the objective of capital growth or income generation over the medium to long term. The account is free of income tax and capital gains tax and the funds are usually fairly accessible if they need to be withdrawn. The limit for contributions for an adult ISA in the current tax year is £15,240 and for 2017/18 will be £20,000. So you could use your own allowances and have all the £30k tax wrapped by mid April. The Junior ISA allowance is just over £4k per year. You could drip money across over a few years this way.

If the money was wrapped in a Pension then it could attract some tax relief (limits apply) but the massive downside is that the money is locked away until at least age 55, so probably wouldn't be as suitable as an ISA.

Many people shy away from investing in stocks & shares for long term growth because they don't understand it and assume that it is all high risk. This is where the advice of a qualified financial adviser can help you as they can guide you through the minefield.

No harm in asking. Last month Nationwide offered us free advice when dh got a substantial amount from his mums will.

I understand your reluctance to use an IFA! I'm sure there are plenty of good ones, but I have an instinctive distrust of them, probably because I don't properly understand how their commission works.

I am no expert, although have a basic knowledge as I advise on property investment. I wouldn't leave it in cash for 15-20 years because of depreciation due to inflation (although we do have very low inflation at the moment). It needs to be invested in anything that is a hedge against inflation. Property is a classic example of this, but you probably wouldn't want to tie the money up in a property and also get a mortgage and have the management hassle. Therefore you could look at buying shares in a tracker fund, maybe focussed on real estate, gold or other commodities? You could spend a few months doing a lot of reading and googling, and get yourself a share trading account from your bank and do it yourself, or pay an IFA to choose your fund and trade for you. Then you can just sell as little or as many as you need to in the future if you need to access some money. It isn't that hard to do if you put aside a bit of time to research the best thing for you and learn how to use the share trading accounts.

As someone suggested, your bank would probably give you some basic advice to get you going.

You would also need to check the tax position on inheritance to make sure you don't make yourself liable for tax on it by putting it in a particular investment. That's probably the most important thing in maintaining it's value.

I'm sure an IFA will arrive on this thread soon!

Although I understand the concerns about depreciation, putting the money in a pension seems mad to me. The DC is 4!

I don't know much about investments though - have I missed something?

Inflation is over 2% and rising, as anyone who buys fuel,food , insurance,council tax will know.

You can't get near that on savings. Split it into an emergency fund and put the rest in an investment isa. Stock market at record high though.

tootsietoo an IFA has already arrived on this thread

The pension isn't a crazy idea because with compound interest, a small deposit over many years could be a great return.
The other good thing with a pension is a non earning child can get 20% relief on a £3600 deposit each year. So you pay in £2880 and it gets grossed up by the government to £3600.
That's some nice free money.

But I think it's more appropriate as an 'extra'. If this is the only lump sum your child is going to get, then the pay back may be greater if it allows them to go to uni, or to buy a flat much younger than their peers.

Personally I'd put it all in a S&S ISA, as we're not far off April you can get the 2 tax years allowance very soon.
Speak to an IFA, or choose a mix of mainstream funds so your eggs aren't in one basket. Shares go down and up, but I'd see this as a 15 year investment, minimum.

Don't know why someone said about different types of pension having different access... they don't. Sons protected occupations can access early. But a private pension - once in, it is locked in. It can only be paid out in case of death or certain classes of very serious life limiting illness.

Children are taxed on savings, it's just that most of them don't have sufficient savings to breach the limits.

It's worth being aware as well that parents are taxed if the interest on their gifts of money to their children exceeds £100.

Details here at gov.uk and a more detailed explanation here at Which.

You can do a lot of basic research at MoneySavingExpert but I would probably go to a fee-paying IFA myself.

I don't think the exceeding £100 is an issue here - that only applies to gifts from parents / step parents / guardians, and this was from a grandparent.

Sunseed suggested using OP's own ISA allowance, but I'm not sure that's allowed (although unlikely to ever come to light!)

If a grandparent gave the money to the parent and said "it's for you to do something with for grandchild" then you could say it is the parent's money.

But if this is money from a will, it belongs to the child. If you put it into an adult ISA and a Junior ISA, then that's tax evasion, I think.

Thanks to everyone for the advice. Particular thanks to Sunseed for explaining the difference between ISAs and pensions!

I've looked at Stocks and Shares ISAs but I'm not sure you can do that for a junior ISA? Also, I thought junior ISAs locked the money away until they were 18? Which should be fine, but might not be.

Yes you can have a Stocks & Shares junior ISA and yes, the money is locked away until 18 and then belongs to the account holder absolutely.

As things stand you are currently in the position of holding £30k on trust for the benefit of your child until they are of age to receive it themselves. Unless the settlor (grandfather) stipulated how this was to be done then you are free to choose how you hold the money, but as a trustee you do have certain duties such as protecting the capital value and taking the correct level of risk with it so that it has potential growth.

Lots of info here:
www.gov.uk/junior-individual-savings-accounts

For a JISA, you can choose Cash or Stocks & Shares, same as for an adult.

However, once you pay into a JISA the money belongs to the child. You cannot withdraw it. You can move it between ISAs - so if the stock market was about to crash and you wanted to switch to Cash ISA, that's OK.

You can't withdraw the money. The child can manage it aged 16 without withdrawing it - e.g. Changing funds within a S&S.

But - the money is theirs at 18. You cannot stop them withdrawing it all and spending it on a fast car or a drug fuelled birthday party for all their friends.

Personally, I'm not a fan of JISAs!

What do people here think of putting money into Premium Bonds? Reasonably accessible, guaranteed to be a safe investment, but no guarantees on returns.

Sunseed, if this is your area, what is the tax position on putting a child's money into your own adult account? Is it tax evasion?

if the money was left specifically to your child with you as trustees until old enough you can't put it in a pension as the child should be able to access the money once an adult at 18-21 normally 18 you can not decide to tie their money up until age 55+
as a trustee you are duty bound to invest the money wisely and to maximise returns safely ie not gamble with it so at £30K you need finiancial advice.
it depends on terms of will whether any money can be used before chid turns an adult some will say for medical / educational needs so could be used for schooling tutoring etc but not living expenses
so you need to check the will for exact terms then get financial advice. it is unusual to be able to tie money up past the age of 21 and in many cases age 18