Are Child Savings accounts a good idea or not?

[Bunny44]

Hello, I'm trying to decide what sort of savings account to set up for my child. I've got money coming in from his dad and also me and my parents would like to contribute. It's likely to be a substantial amount over the years. I keep having this concern that if I put it in an account that only they can access when they turn 18, something might go wrong e.g. what happens if they do something really stupid with the money upon access?

Am I better off saving it myself and then using it to pay for uni and a house deposit etc as those things arise?

But then again if I do that I can't access the tax-free long term savings amounts as I've already maxed out my own ISA.

My child is still a baby and although I have all these hopes and dreams for how they'll turn out, I just have this niggling feeling of that you never really know and he's so young right now. I am a single parent but I'm a fairly high earner and hoping I can manage without using the contribution from his dad and that this can be put aside for the future.

Any personal experiences would be welcome.

I prefer to miss out on the tax savings and save in my name not the child's.

Either you aren't saving much, in which case the tax issue is small too, or you are saving sufficient it would be an issue if the teen blew it all at 18.

Depends how much you class as substantial, but i would be very wary about handing an 18 year old a significant sum. I would look at josa f9r uni fees, first car, or year off travelling type amounts. If you are talking house deposit or more then definitely keep control yourself. Whether in your name or in a trust.

I know plenty of 18yo who have spent their entire Junior ISA / CTF which their parents spent years savings on, well, as good as nothing, just living it up.
In other words I would save in my own name!

Spread the money out so they get some at 18 and open a SIPP. I like the idea that when I'm gone / very old and DD retires Ill still be treating her and looking after her.

I know several people that blew money their parents had saved for their future. They would think nothing of treating their friends.

Potentially I would save in their name but with the understanding it would be taken out and looked away in a 5 year bond or similar when they turned 18.

Perhaps a trust would be more appropriate if it will be a very significant sum but I don't have any experience of those

I'm wondering the same, OP. For now I'm saving a bit a month in a separate account with my own bank.

The only money saved directly for our DCs are birthday/ Xmas cash gifts to them. As they got older they could decide what % of their gifted money goes into their savings. They should have around £8k at 18. Enough to get them a car and 1yrs insurance or help towards Uni but if they choose to blow it all in a couple of weekends, it's their money, their decision, they have to live with that.

I prefer to keep family savings in our names just in case they are terrible with money. My 16yr old seems to be quite sensible but still, we all make silly mistakes in our teens.

None of us know what our kids are going to be like at 18. I try to give mine a good financial education but anyone can go off the rails as a teen. I prefer to save myself and gift as I wish rather than risk the saved money being wasted.

Ok thanks everyone it's helpful to know it's not just me with reservations. Just estimating it could be say £50 - 80k. Obviously inflation would play a big factor so might not be as big as it sounds but hopefully would accrue interest.

The thing is I'm an upper rate tax payer so get taxed on any interest and I feel like it's not beating inflation if they're not getting the tax free advantage.

Is there a way to not inform them of the accounts until you've decided it's the right time?

I like the idea of what @Singleandproud said about spreading them out so they can't access all at once.

What about putting it into Premium Bonds, as prizes are tax free? Each person can hold up to £50k, so if you don't have bonds yourself you could keep it in your name still, avoiding tax and protecting against possible 18-year-old silliness!

ds23 had just under 10k at 18 that we had saved in a child trust account. When we gave it to him we stipulated that half was to go into a savings account and half was his to do as he liked. He bought a car. He has topped up his savings over the years and has been very responsible with it.

Or put some of your money into national savings certificates which are also tax free.

We had similar concerns, as we were already saving for our DSs from when they were born and then they inherited some fairly large sums when grandparents died and they were only 10 and 12.

My strategy was:

• spread it around so there's not just one 'pot' they can empty
• choose accounts which are difficult to access, i.e. not high street banks which have apps which make withdrawing £20k as easy as ordering an Uber! I actually found a local building society which required you to visit the branch with a passbook (which you can 'keep safe'!) and two forms of ID to withdraw money. It had a competitive interest rate until they reach 23 years.
• Utilise their JISA and ISA (post 16) allowances. But perhaps look at Stocks and Shares ISAs via an investment platform - again harder to access - I don't think my DSs would have known where to begin!
• Similarly Premium Bonds - takes time to cash in etc

The other thing is to begin to talk about money and savings well before they get to 18. Our kids knew we had money saved for them, but we always talked about how it was for important things like a first car, or university, or a house deposit etc.

I was slightly nervous when they reached 18 and started getting the letters about accounts and moving them into their control, but we did it together and then they largely forgot about them. They are now 24 and 22 and thankfully neither has withdrawn money and gone on a massive spree. They've come to me a couple of times saying 'do you think I could use some of Grandad's money for... going travelling/ buying a new laptop etc' and we've talked about it (and usually agreed to it).

Also check out MoneySavingExpert, as people talk about this dilemma there all the time!

Always save for your children in your own name, not theirs.

Bad advice.

Children have their own tax free allowances, so if you've already maxed out your cash free savings you'll end up paying tax (and the OP says she's a higher rate tax payer).

There are plenty of options - just needs a bit of planning.
You could even move a lot of savings into 3 year fixed rate ISAs just before they turn 18! Hopefully by 21/22 they will be a bit more sensible.

My children had savings accounts in their names but I knew it would be a relatively small amount so over the 18 years they got £4-5k. That was grandparents paying in money specifically for them so not something I could gate keep.

Their Child Trust Funds were literally the initial £250 which for Ds1 ended up being £1200 with nothing else added to it. Ds2's performed less well and he got £850 but we topped it up to even them out.

Those savings plus the CTF went into a LISA as soon as they hit 18 as we have always talked about money, mortgages, house prices, bills, cost to buy and run cars etc. We had separate savings accounts in our names, one specifically for uni as it stands at the moment the government expects our parental top up to be over £5k per child per year. We had £40k saved for that. Ds1 has graduated and Ds2 is now at uni.

In comparison Ds1's mate has been earning around £18- £22k for the last 3 years, living at home with no bills to pay and has £2k in savings. I have no idea where he has spent it as he doesn't even drive a car.

I understand the tax implications. I also understand that all manner of things happen in the lives of late teens / early twenties no matter what financial prudence you instil . One coercive / controlling relationship at the wrong time and that money you worked so hard to save is gone.

Yes I'm particularly worried about his dad and his family abroad (they're from a developing country). I think there's a potential he might try and pressure my son later in life to give him money. Nothing for sure but I'm just aware I need to keep an eye out for.

OK, well in that case there may well be cause for concern and extra caution.
It's also possible to put money into trust until they are 23 for example, but in my experience it's fiddly to administer and report and the range of places you can then save or invest it may be redeuced.

Save in your name but what about a LISA? It can only be used as a house deposit or for retirement. So don’t tie all the money up but current return is 25% though you can only deposit 4k PA in. Do you save your own personal max ISA allowance every year?

@Bunny44 I think I’m right in saying that legally banks/institutions have to notify children in advance of them turning 18 if savings are in their names. My DD was born during the govt CTF scheme so I did save for her in a CTF which did grow really well in comparison to the amount paid in. When she was around 16 we did have a chat about the money, she understood the scale of the fund and the fact that it would cover her uni fees. When she turned 18 she transferred it into a savings account after looking into Premium Bonds, Lisa’s etc. She understands she has been really fortunate in comparison to her peers so has used it wisely on the very thing it was set up to do.

My DD has told us that because we have explained the value of money over the years and chatted about debt, credit cards, mortgages, insurance, interest and the cost of living she feels more knowledgeable about how to spend wisely. My advice would be to chat to them openly from a young age so that they are financially literate by the time they reach 18. Getting a PT job also helps them understand tax codes, NI etc alongside an appreciation of the effort that goes into earning £10ph… there were peers of hers that absolutely saw it as a fun fund but they had never had any chats to their parents about money matters. So my best advice is to chat openly about money age appropriately.

For us, we've decided against it as we want to have control over what the money goes to. Not because we plan to raise him to have bad money management but just because I was a pretty bright and responsible 18 year old and I still didn't have the concept of managing such huge sums of money with the future in mind. We're open to discussing what he wants to spend the money we offer on, we aren't going to completely dictate what it's spent on.

We put everything we can into our household savings and will use that in future to gift at appropriate times.