childrens savings accounts

[cori]

I have a lump sum ( from an inheritance) that i would like to put in a long term investment account for my DS 21 months. any advice?

We put DD's savings into National Children's Bonds from the Post Office. I think you buy them in blocks of £25 and they have a guaranteed rate of interest on them at the end of 5 years. When you take them out the Post Office will tell you exactly what your return will be. After the 5 years you choose to take the money or re-invest. You can take out up to £1000 per issue (there are new issues about once every 4 or 5 months).

DH chose these for DD's money. He does deal with finance and investment a lot but felt these were best for DD. They are simple and no hassle, and no risk. Although probably not the highest return you can get - but most higher rates will come with risk.

Nationwide smart2save was recommended to us

Forgot to add - DD's money first goes into a normal Children's Svings Account (RBS Rainbow account) which is linked to our own.

Seeing as the interest rate is so low at the moment (great for mortgages, rubbish for savings) you could think about premium bonds. You can buy them on behalf of a child and you can have the fun of seeing if he 'wins' each month. We got £50 a months for 3 months out of 4 when we first put some money in. Not a bad return for a couple of thousand. Of course, we haven't had anything for the last few months but you never know...

Would be rather odd though if he became a millionaire

Have a look at this , cori.

I think the only concern at the moment is not to tie yourself into anything because interest rates seem to be going up now.

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Alliance and Leicester's First Save has good interest and no strings

there seems like so many possibilities , and it seems all very confusing to me. I had not considered that interest rates are going up , so i should avoid long term fixed deposits.
i agree that it is bizarre that there are limits for how much parents can give as a gift. though not for grandparents. Particulary for pooor DS as he has no grandparents , and the money comes via the last one that passed away two years ago.
what is the limit? what happens if you give more than the limit?
How do you 'ring fence' an investment , DS is only 21 months so blowing it on booze is not a concern, but would useful for the future.

Best advice I ever heard (on R4's Moneybox) was to reduce mortgage asap - it's most household's single biggest expenditure so it makes sense to reduce your debt rather than increase your savings (as most savings scheme's interest is less than what you pay on the mortgage IYSWIM). This way you pay off the mortgage sooner so you've got that 'spare' cash available when you need it - for uni fees / car / flat / whatever ... HTH

Cori - if you don't mind me asking, how much are we talking - hundreds or thousands?

Are you investing it to give to ds when he is 18/21, or wil you need it back to buy things for him sooner than that?
What is your attitude to risk - are you willing for the value to possibly go down, or is capital preservation your main aim?
Will you want to add funds to it in future? As more lump sums or as a regular savings plan?
What savings/investments do you have at the moment?

A lot of questions I know, but you do need to think about these things before you can decide what sort of investment is right.
And I should make it clear I am not actually qualified to give financial advice - any suggestions will be just that (So the regulators don't come chasing me)

Finally - not sure how long ago probate was granted, but did you ask the solicitor handling the estate if you could have a deed of variation - this would have altered the will so that the money was left straight to your ds, rather than to you. If the amount is sizeable this can save on tax.

Twiglett can I just query your point on the interest over £100 thing. DS's account is not yet anywhere near yielding this amount but if interest rates are higher and we continue to pay into it it might happen. But that £100 would be his only income during the year and I signed one of those tax exemption forms. I had assumed he would have to get several K in interest before tax kicked in.

Also what are the limits on a parent gifting to a child? Suspect this is not an issue in our case.

BTW our DS has a child's account with Yorkshire BS. It is held in trust for him by me.

am talking thousands. the plan is to invest the lump sum, would probably not be adding to it over the years. Do not like the possibilty of it going down in value , so would want low risk.
Would give the money to DS between at around 19 , so would be there for university fees etc.

Did not ask for any deed of variation etc. probate granted quite some time ago( over a year)

as for our own investments. rest of the inheritance to be used to pay off some of the mortgage and term deposits, so we can afford to trade up in a couple of years.

Bozza, Twiglett is right. If the money came from the child's parents it doesn't matter what you've done re non-taxpayer forms for the account. The IR counts it as part of the parents' income, not your child's, if its over £100 a year in interest. Otherwise everyone would be throwing their spare cash into kid's accounts to avoid the tax. You can only avoid this if you have records showing that the deposits are from people other than the parents. (ie: cheques written to child from grandparents etc).

Bozza, Twiglett is right. If the money came from the child's parents it doesn't matter what you've done re non taxpayer forms for the account. The IR counts it as part of the parents' income, not your child's, if its over £100 a year in interest. Otherwise everyone would be throwing their spare cash into kid's accounts to avoid the tax. You can only avoid this if you have records showing that the deposits are from people other than the parents. (ie: cheques written to child from grandparents etc).

what are the tax rates on savings?

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No tax on premium bonds...

If you are looking at an investment term of 17 years, you really are better off putting your money into equities rather than cash. Over a period like this they have outperformed at every point in history.
As you want low risk you should probably invest in a fund of large cap UK securities. A financial adviser could help you to choose one which suits. Any investment should be put into an ISA wrapper (you and your dh can put in 7k each) which will protect it from tax.
If you really don't want to risk the money, the best place will be cash ISA's - you can put up to 3k each per year and not get taxed. Any non ISA'd investments are taxed at the rate of tax paid by you on all income. So the interest is added to your total income from work etc, and taxed at your marginal rate - 0% on first 4k ish, 10% on next 2k ish, 22% on next 25? k ish and 40% on anything else.
To look at the best rates on ISA's/savings accounts, and returns on equity funds, check www.moneyfacts.co.uk. You will have to remeber to keep checking that you rea still getting the best rates - I look at our savings accounts every 6 months and move if necessary.

Twiglett - sorry to go on just trying to make sure I've got it straight. If DS's money is greater than £2500 thus earning more than £100 interest does that apply to £2500 total in account or invested in current tax year? Am concerned about this because when people have given DS cash I have just spent the money and transferred the amount via the internet from our current account to DS's BS account.

We opened a bank account for dd using the child benefit money. We are looking at using it to fund a stakeholder pension. Gains are tax free and based on present growth it is estimated that the fund could be worth about £0.5 million when DD is 55. It leaves us without the worry of thinking of an inheritance for her

Pension capital gains are tax free, but income received from it by your dd is not. And any income recived by the fund is taxed - so less possibility of compound growth. And you cannot - and I mean cannot under any circumstances, even bankruptcy - get at the money until dd is 50. I would definately use up all your ISA allowances before considering a stakeholder pension as an investment for a child.

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Just spoken to DH and if it is quite a lot of money you might be best speaking to an independent finacial advisor. You don't pay a fee outright as such, instead he/she will charge comission from your investment. Make sure you get a good one - ask around - and they will tell you what is currently the best course of action.

What we've done is tried to pay the mortgage off with any extra cash. The idea is that this is a guaranteed gain (unlike shares, stocks, bonds, any of that). THEN in the future, when we would hope to have no more mortgage, we will set aside as much of our income as we might have expected to still be spending on a mortgage, into tax sheltered accounts (like ISAs), with the plan that this money will be released when the kids might truly need a lump sum. Moreover,... suppose you are spending £500 on your mortgage right now; and instead you had that much to spend helping your child through Uni each month, or to pay their own mortgage, etc. It might not cover all their expenses, but it would go a long way. And would be additional to any lump sum cash savings we had been able to save up in our children's mid-late teen years.

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