Start building a nest egg for your child's future - we explain how.
It is important to start saving for your child’s future as soon as possible. There are a huge variety of children’s savings accounts available which not only maximise the money you put aside for your child, but also aim to encourage your child to develop good saving habits too.
Regular savings
The majority of child savings accounts offer instant access to saved funds and have no minimum income limit. Most accounts require a parent or guardian to act as a trustee on the account until the child reaches a specified age, usually between 7 and 10 years, when (providing on consent from the trustee) they are able to operate the account themselves.
Incentives
Most child accounts offer a good rate of interest although it is advisable to check this periodically in case the rate drops over the years. Additionally, to encourage saving, most accounts designed for children offer saving incentives such as books, stickers, moneyboxes or toys which can be earned as the child adds money to the account.
Child Trust Funds
To encourage parents to save for their child’s future, the government introduced the Child Trust Fund scheme.
These investment based accounts were opened with an initial £250 deposit provided by the government and designed as a long term investment which will only become available to the child when they reach 18.
Although Child Trust Funds were closed to new applicants in January, 2011, children with an existing Child Trust Fund account can continue to save up to £3,600 into it each year.
Child Trust Fund accounts essentially invest money in the shares of a range of companies. Although to some the stock market can seem a risky option for a child’s investment, in general it will encourage better growth over time than a savings account.
Many Child Trust Funds offer lifestyling; this is a technique used to maximise your investment. In the initial years of the account money is invested in a spread of higher risk shares chosen to maximise the growth of the capital in the account. Over time funds are transferred to progressively lower risk shares where the focus is on maintaining capital and generating income into the account, this continues until the account matures.
Stakeholder Child Trust Funds adhere to a set of regulations brought in by the government to make it easier for parents to compare Child Trust Funds. These can be added to at any time with any amount over £10, have minimal management fees and aim to maximise investment by using stock market investments. Non-stakeholder Child Trust Funds are also available.
By combining a branch based children’s savings account with a longer term savings plan such as a Child Trust Fund for your child, you should be able to build a solid financial basis for their future.
Junior ISA
Following the withdrawal of Child Trust Funds the governement announced that a new tax free Junior ISA scheme would be introduced for all children under 18 who didn't qualify for Child Trust Funds.
These accounts became available on 1st November, 2011 and like Child Trust Funds allow you to save up to £3,600 each year for you child's long term future tax free.
For more information on Junior ISAs, read our guide: Junior ISA Regulations FAQs.
