how to manage DC's savings

[yellowflags]

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

I am not a tax expert but first question would be whether there was any tax to pay in the first place. Remember that every child has their own personal tax allowances for income and savings. It is more likely that an adult would try to avoid tax by putting their own money into a child's account, hence why the rule about any interest over £100 earned by child on gifts from parent being taxed at parent's own rate.

Thanks for answering, good point about there maybe not being tax payable anyway!

So much comes down to your individual decision about risk.

OP, I had a similar sum 3 years ago - but given directly to me so no restriction how to use it. I've shared my decisions below, not because I think they're right for everyone, but because I thought it might help you to see someone else's thinking. If only to think 'oooooh, no way would I do that!'

I put 2x £2880 into a junior pension. I "made" £1400 for her overnight due to the tax relief. For my £5760 payments, it is now worth £9000 after 3 years.

I wasn't sure about tying it up for 50 years (based on today's legislation). I also didn't like the uncertainty of not knowing how it would be treated by future legislation - what if state pension becomes means tested only, and she loses pound for pound based on what I saved? Also, I think that money earlier in life can pay dividends - like allowing an unpaid internship that catapults your career. It's just too long term for me. BUT the stats on 50 years of compound interest looked great... so I decided, worth a punt, but I won't add to it.
I also considered that she likely to have financial support for uni/house from both parents - so I'm not tying up the only bit of help she'll ever get. On this, I'm thinking - if it doesn't perform well, it's not so much to lose. If things are really hard financially before she's 55, then she's going to need money then too, probably. And even though she can't touch it, it might be enough for her to afford to opt out of her own pension payments for a year or two if she needs to find cash immediately.

Then £23K I put into a S&S ISA in my name - it has grown by £5K in 3 years. But the market has risen, and I picked something with a medium not low risk profile - again, because I'm not so worried that this will be the only extra help she ever has.

If it was...

I think I still would have gone medium to high (but still mainstream products) ISA on £20K, and put £10K in Premium Bonds. Just in case!
For the higher risk ISA, I would be thinking - you don't miss what you never had, and £10K is enough as an emergency cushion.

Ellisandra You have exactly the right idea and understanding!

Thanks!
I think being an IFA must be really challenging - interesting too.
So many possibilities but it's not just about the maths and returns - but about being able to relate to people, and help them tease out what their own attitudes to risk are.

OP - what I did find is that I felt a bit paralysed by the options, and worried I wouldn't do the best thing.
You, and a whole world of IFA's can't tell you the right thing! It's just not predictable.
There's a wrong thing: spending it on a holiday for yourself or letting it devalue in a zero interest account.

If you pick something that with the benefit of hindsight could have been better - don't panic!

And you don't have to make a decision today. Putting it all in Premium Bonds and crossing your fingers for that whilst you decide, is a good option! Don't let yourself get stressed about it!

Ellisandra thank you for sharing - that is really really useful and very good advice. The decision is indeed paralysing! It's a great idea to put it somewhere safe for a while and learn more about the options.

My DS also received £30,000 from his grandad when he died. Unfortunately, when my dad died I had been estranged from him for 25 years and he did not stipulate who should be the trustees of my son's money so my dad's solicitors originally took on the role. They weren't keen to manage such a 'small' sum as their costs would have wiped out any potential interest. After speaking to me and my DH they decided to pass the money to us and we were made trustees of DS's money until he is 18 (he was 14 when my dad died).

We were pretty clueless to be honest and our own IFA wasn't able to invest the money for my son as he was under 18. We went on the moneysavingexpert website and found the best interest rate for a children's account which was with the Nationwide. When he was 16 we transferred the account into my DS's name solely as we would have been taxed on his savings and we have savings of our own. In December he will turn 18 and the money will be his! Apart from him joking (we hope!) about how many Xbox games he could buy with the money he has always been told (brainwashed!) that this money will be re-invested somewhere, with his input, and it is to be used as a deposit on his first house.

I'm sure we could have been much more savvy with his money but he has received some reasonable interest and hopefully he will have a foot on the ladder for his own house when he needs it.

Premium bonds! Google it

My children were in a similar position a few years ago, inheriting a small amount from my grandparent. This was passed to me by the executor to hold in trust until they are 18.

I wanted to make sure that whatever decisions I took were defensible, so that ruled out property investment (illiquid), premium bonds (too high risk), pensions (too long term) and savings accounts (low return). I also wanted to keep the money separate from my own (so no fronting ISAs).

In the event, I set up a bare trust with Foreign and Colonial, investing in their investment trust. This recognises that the money belongs to the child, but that I'm the trustee. I think similar products are available with Witan. This has done quite well; its now worth just over twice the initial investment.

Do you mean high risk for Premium Bonds?
They are no risk! But, can also be zero return.

I meant high risk.

To explain, there is no danger of losing your stake with premium bonds, but the returns are hugely variable - from a zero return to winning millions. Risk is a function of this return variability, and so it is high (unlike a normal bond or gilt, where the return is known, and so the risk is low).

The prize rate with Premium bonds is 1.5% (while inflation is around 1.6%). This is tax free, but this is unlikely to be a consideration for a non-earning child. To get that 1.5%, you need to be investing a large sum (due to the spread of the prizes). At the moment, you can buy a 2.05% 5yr fixed rate savings account from Atom - so a better return at a far lower risk.

Unless you're a higher-rate taxpayer, if you're investing in Premium bonds then you're reducing your return for the tiny chance of a big win. I don't see that as something appropriate to do with someone else's money.

Presumably if the money was left to your 4 year old, you wouldnt be able to touch it, in an emergency or whatever. Also as to that you said you dont have much money, so you can live without this. I would get an appointment with a financial adviser, its not expensive, and be guided by what they say.

ok, so reading this thread has made me realise I perhaps do need to go to see a financial adviser after all! So the next question is - how do you find one you can trust? The only people I know who use them have lots of properties or very large inheritances to manage. Who would give impartial and inexpensive advice to someone without much money?