Saving accounts for children

[triplets]

Can anyone recommend a saving account for children, we are looking at long term for when my 4yr old trio go off to Uni. We have been saving for them in a unit trust fund with Investit but have just rec`d a letter saying that we can no longer add to it, leave it as it is, or move the money elsewhere. Financial help needed!

The Nationwide Smart2Save account is usually tipped as the best cash account for wee ones. You can only save up about £2200 in there, though, I believe, before tax liability is incurred.

Personally I agree with Motley Fool that any of the "baby bonds" are a complete con with excessively high charges & a waste of money, but they are a tax shelter and some FAs promote them.

A Best way to save for your children is usually to pay your own mortgage off, or any debts that you have, as fast as possible. This will give you & your kids the most money in the long run.

Interesting view point Zebra. I think I go along with that while putting a small amount in a savings account monthly. Also any money received as gifts goes in there too. We have been careful not to extend our mortgage term.

Actually the limit is dependent upon the amount of interest earned (so it depends upon the interest rate prevailing at the time). The limit is £100 of interest on contributions by each parent (so £200 interest for a standard 2 parent family - not sure how it works for step-parents/adoptions). Tax on interest on contributions by other people - e.g. grandparents isn't payable until you go over the child's personal tax allowance. So do keep records on where the money you pay in comes from. I shouldn't say it - but cash paid in is obviously less tracable than cheques, etc - so probably better if it's actually you paying in, but worse if it's someone else! It's also better to put the account in the name of a non-earning parent if you're not both working, or in the name of the lower earner if one of you pays higher rate tax.

The other thing you could look at is a low-charge Index Tracker - generally better value than the "baby bond" type products which are essentially endowment policies by any other name - and who buys endowments these days?

GillW - do you know about money?? Oh,please help. I want to do the same as triplets, using our child benefit and topping up on b/days etc. I am totally confused and surrounded by bits of paper torn out of financial sections. Should I go with a stockmarket investment? If so, is there one that would guarantee not to lose all my money? Or would and ISA do or a building society? Is the tax break really worth having. And suppose ds turns out to be a monster 18 year old who wants to blow the cash on drugs - would I have to invest in my name to prevent him getting the money? Anyone, please help! I've been thinking about this since he was born, 14months ago.

my financial adviser told me to put dd savings account in our name for the reasons you mention!

OK this is not official financial advice aloha as I am not allowed to give that . So this is purely my personal experience
Any investment that is geared to children usually has very high charges. For a long term investment, shares are better than cash, although there is no guarantee that you will not lose all your money. You can get "guaranteed funds" but charges are high and again, over the long term not worth it.
We are paying child benifit into a unit trust on a monthly basis. Most companies accept £50+ per month. The account must be in a parent name, but designated, childrenunder 18 are not allowed to hold stock market investments in there own name. You are better off going for some sort of growth fund rather than income funds, because of the tax implications of getting income, and the long term nature of your investment. You can't do an ISA of any sort for a child under 16.
I won't recommend an individual fund, as I am slightly biased to those of mine and m husbands companies but whatever you do, go through a discount broker, who will give back to you some of the initial charges.

aloha, we are doing essentially the same as prufrock with the exception that the investment is in my name in an ISA to maximise the tax break. agree that all accounts/investments geared towards children seem to have low benefits/high charges. i would look for the best deal regardless of the ostensible "childrens'" marketing. is there any particular reason you want the investment in your child's name? i was advised to keep the savings in my own name, as there was no discernibly good reason to have them in ds's. depends on your objective for saving, perhaps, ours is to go towards ds's university education, so the tax implications of that are somewhat different than if you wanted to present your ds with a lump sum on his 18th or 21st birthday. i'm going to try and find the ifa website for you. ifas will frequently do you a free introductory session, and although they will not come up with a detailed plan for you they will explain the basics and come up with some useful hints and tips to make sense of it all - at least they did for me!

Prufrock, thank you so much. Funnily enough, after I'd posted my last message my dh came home talking about wanting to put money aside for ds and dsd! What a coincidence. Please, could you explain though what growth fund is compared to an income fund? Also what is a discount broker and how do I find one. I keep reading about Invesco - is that a reputable company and how would I find them? Sorry to ask so many questions!

here it is >>http://www.unbiased.co.uk/

you could also try the money pages of www.guardianunlimited.co.uk - i've found some useful idiot's guides there before.

like prufrock, must disclaim my messages, am not a financial adviser!

Ooh, this is better than trying to plough through MoneyMail! Bossykate, do you mind if I ask how much you put away to make enough for projected university fees - I really don't know how much that would be/what I could expect to make on my investment. Don't answer if you don't want, obviously, as it is a v cheeky question. And no, I don't specially want the investment in ds's name, I just wondered if that was really good for tax (being freelance) but also worried about ds spending whole lump sum on dodgy second-hand Ferrarri instead of sensible house deposit/university fees etc!

We're posting at the same time! Hi!

Aloha - you can't have an ISA until you're 18, so that's not an option. And as interest on childrens savings accounts is paid gross anyway there wouldn't be any great advantage anyway. As zebra says the Nationwide Smart2Save account is a good one - it's what we have for DS's savings, and his child benefit gets paid into an index tracker fund, with the income re-invested in more units. There's quite a good book - published by the Motley Fool - called "Make your Child a Millionaire", which explains all the options, and the implications of different choices, quite well.

message withdrawn

Couldn't possibly comment on Invesco aloha - remember I'm not giving you advice.
Income funds generally invest in shares that pay dividends wheras growth funds tend to invest in companies that have potential for future earnings. You should therefore see more capital gains on a growth fund. But you can do as GillW and have the inome re-invested. Index trackers are good in times of rising markets, but the problem with them is that in times like this when equities have gone down the swanee, index trackers have gone with them. Well managed active funds should not have done so to the same extent.
Dh is trying to get me to tell you to invest in his companies unit trusts, but I refuse to advertise on his behalf!

If you have not yet invested your ISA allowance (up to £7k in a maxi), you can have an ISA in your name for ds and dsd. Otherwise opening a unit trust in your name, but designating it to each child means that for inheritance tax and CGT purposes it belongs to the child, but you still control the money - so no Ferraris unless you go a bit mad.

You really need to speak to a financial adviser about which fund to invest in if you have no real preference yourself. A good one is Chelsea Financial Services (0207 384 7300 www.chelseafs.co.uk). They produce a quarterly newsletter of recommended funds and rebate most of their commission back to you. (They don't pay me I promise) Or if you contact IFA promotion they will give you details of local ones

hi aloha

i recommend you contact an ifa, as prufrock says, this really is best if you are unsure and confused, as they will explain the options, having assessed your objectives and risk profile. they should also be able to advise you on the tax implications of various strategies. www.unbiased.co.uk is the same as ifa promotion, so you will be able to find one there. as i said, many will do a free introductory session.

in terms of how much we save, unfortunately it is based on what we can afford now rather than an expected projection of the realisable amount in future. at the moment, this is the childrens' allowance topped up by me each month plus the proceeds of christmas and birthday.

hth.

ALOHA: I'm not an IFA, either, but think I can explain growth vs. income fund:

Income is managed such that you get some regular income. Any dividends are not re-invested, but siphoned off by you as income. Retired people often quite like income funds.

Growth fund is managed to maximise the value of the fund. Dividends are reinvested; ie, you don't get a steady stream of cash back from it. Most of the glossy graphics you see with steep lines to show what fortunes can be made by investing are based on "growth" funds.

Never forget that you can lose all your money in many investments. We lost about £1500 on Marconi shares (OUCH). The interest rates one gets in ordinary bank or buildsoc. savings accounts may look low, but compared to inflation, they are actually extremely high (ie, you can earn double the inflation rate nowadays, and that is very unusual historically).

Returning to what I said before, if you have any debts, almost certain best strategy is to clear them first. No point in investing money that might earn 5%, if you are paying 15% on a car loan, etc.

Thanks so much everyone. Time to make that appointment and get on with it now. Zebra, what you say makes absolute sense, and is, of course, correct, but I think if we waited until we were completely out of debt, ds would not have any savings at all when he was 18. I think if I regard the child benefit as 'his' and not use it for anything else it would at least be a start.

One or two people have suggestd having an ISA in your name - just a word of caution, in the event of divorce, death or bankruptcy, this money would be considered to be yours, not your childs. Obviously none of us expect these things to happen to us - but it's as well to be aware of the implications.

One other thing - re what zebra was saying about clearing debts before thinking of investments. I agree totally, but don't forget the one big "debt" which most of us have - a mortgage. If anyone's thinking about moving or remortgaging t's worth looking at the all-in-one motgage accounts (like this one - although as always don't take this as a recommendation) which offset your current account and savings accounts balances against your mortgage - you effectively get the mortgage rate of interest on your savings and current account, and as you don't actually receive the interest (assuming your current/savings account balances aren't greater than your mortgage), you don't pay tax on the "interest" either. This is effectively tax-free saving, without the ISA limit, and offering a rate comparable to that you can currently get on ISA's.

With interest rates so poor and charges attached to investments (which aren't doing to well at the moment), I decided to buy the kids Premium bonds. Am also paying of the mortgage asap- a point Zebra did make in an earlier post.

Re Prufrock's earlier comments on the performance of index trackers compared to "Well managed active funds"... Even leaving aside the fact that having a good fund manager now is no guarantee that they won't move on in the future, then a fund which is charging (say) 2.5%, has to consistently beat the index by more than 2.2% to be worthwhile compared to a lower cost index tracker funds (we pay 0.3%). I don't have the figures to hand, but I've a suspicion that historically very few funds have managed to do so over an extended period.

Not sure that all this is really helping anyone trying to make choices much - it's a bit of a minefield, and there's no real guarantees that any of us are making the right choices.

Thanks to everyone for the (excuse the pun) wealth of information. Am too tired tonight to absorb it but will go through it with Harry tomorrow!

hi everyone

meant to post this additional pearl last night but got kicked off the computer by dh.

you will notice that there is a range of different views here on funds, savings accounts etc. IME, there is no right answer, it all depends on the individual's objectives, risk profile, tax situation etc. therefore, the advice of everyone here is valid, BUT will probably not be appropriate for anyone else, unless their circumstances are the same...

so just to repeat one more time, best to see an ifa - another BUT - bear in mind they will still probably offer a range of scenarios, the pros and cons of which will still have to be evaluated by the individual...

hth.

If anyone wants to see how much money they might save by paying off a mortage early, this calculator may help.

GillW
I could give you a list of quite a few actively managed funds that have consistently performed above the average on a net of fees basis over the last 10 years - but that would be sailing too close to giving investment advice. I suspect that your 0.3% charge is not the total charge, just the management fee - charges should always be compared on a Total Expense basis (TER) as other charge (custody fees, printing charges, directors oop expenses) can all be added and will affect performance.
Index trackers will tend to be the best investment in a continually rising market - but we don't have one now. And they cannot decrease equity allocations during a bear market. Many true active funds (as opposed to closet trackers) are much better at preserving capital during down periods, so are therefore less risky in absolute terms than a tracker whose risk will be measured against an already risky index. And the key to all fund choices is contant monitoring - if a fund manager moves and you particularly like his style, then follow them, alternatively invest in companies that operate on a more colegiate basis rather than having "stars"

Just reread that and must apologise for going on so. I've been off work for a week - obviously getting withdrawal symptoms