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?

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I advise premium bonds as interest rates are so low all investments seem to be underperforming. You can have up to £20,000 in any one person's name and any money you win is tax free. We've still got our ISA's etc but we've also got around £50,000 bonds and on average get around £350 a month from them. You can win anything from £50 to a million each month! The biggest pay out we had was £10,000 and even £50 each month is more than the yearly interest gained on a savings account at the moment.

At last someone to second me! It's £30,000 now though in one person's name.

Hope all this mentioning of Premium Bonds means that Ernie will choose us this month.

Thanks for letting me know it's £30,000 now - i must get some more in my name!!!!!!!!!

With regards to premium bonds paying out well initially and then dying off, the way to combat this is to regularly cash them in and buy new ones. A study was done on this and it was reckoned after about 6 months of having the bonds the chances of winning went down considerably whilst you're most likely to win when you first buy them.

Twiglett have to disagree on tracker funds - they track the market - down as well as up. A decent, low cost diversified equity fund which is managed to produce absolute returns is a far better bet. Something which has low volatility when compared to an index which can fluctuate wildly (like the FTSE has) is still very volatile.
(I could recommmend a couple of such funds but that would be advertising )

I would recommend reading the Motely Fool Book called "How to Make your Child A Millionaire". It's well written and basically weighs up the pros and cons of different methods of savings, and explains the tax implications too. IIRC it says that if you are thinking of investing long term then equities are a better option as historically they have always outperformed cash (just as Prufrock metioned below). I think the Motley Fool website has more details on this.

Additionally if you do decide to invest in any funds (tracker or managed) and know any friends or family who work in any of the investment banks you might find that choosing a particular fund with that bank can give you a discount on the charges too

Allatsea, I could be wrong, but I understand that even money from child benefit placed in a savings account in a child's name will be taxed as if its the parent's savings once it reaches the £100 interest in a year. Child benefit is payable to the parent, not the child, hence the money is yours and the tax liability is yours too. What you plan to do with it in the future will be a different question, but while its in the savings account it is taxable.

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Twiglett - I do believe the Motley Fool Childrens guide agrees with you that the vast majority of managed funds don't outperform the tracker funds, so therefore you have to exercise a greater degree of caution when picking a suitable fund. However as the tracker funds have unusually been doing terribly for the last 3 or 4 years I don't know if this changes their standpoint on this issue.

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LOL twiglett! i agree with you re trackers, that's where ds's money is. actually it's mine, in an isa, he's not blowing it on a sports car at 18!

Twiglett - only just seen your reply - I wasn't ignoring you.
Mmm -research commisioned by Virgin. Now what do they sell again? You can prove anything you want by looking at the right bits of past performance numbers. And many of the actively managed funds they were measuring trackers against are actually nothing more than quasi-trackers themselves (and I agree they can charge ridiculous fees for doing nothing special) But there are some funds out there which do have that long term absolute growth and low absolute volatility. Unfortunately they don't tend to be the ones that are advertised publicly as they can get all the money they want privately

Speaking as somebody who has been thoroughly burnt by the stock market, I want to sound a note of caution.

Some time this summer the FSTE 100 (UK stock market) hit a six year low, so I think we can safely say that UK stocks have had some 6+ year periods with less than 0% growth (especially when you consider effects of inflation, too). After factoring in inflation, this Observer article argues that building society accounts are a better bet than the stock market, over the next 7+ years.

I don't know where this £100 interest figure comes from but a child gets the same tax allowances as an adult. As long as their earnings (ie interest paid) don't exceed the personal allowance (£4615 this year) they are not liable for tax.

I know there are rules on gifting large sums of money to children (Capital Gains Tax) but normal savings wouldn't come into this unless you were planning to give the child most of your income?

I think the £100 tax-free limit applies when the interest exceeds £100 directly from the capital given to the child. See here for more info. Perhaps money acrued from gifts and compound interest from parents in past years is different, might come under the usual single person's allowance, and thus the interest could exceed £100 without being taxed...(?).

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Still bit confused. Bought a child bond earlier this year. First had to open a savings account for dd after which the money was transferred to a bond. This exceeded the £4615 earlier mentioned. Does this mean we have to pay tax on the 6000 pounds even though it only stayed in the savings account for a short while?

lailag - it's only if the interest exceeds the personal allowance. If you mean £6000 of capital, then you'd be ok. If you had £6000 of interest you probably need an accountant, not mumsnet advice