Many parents will have experienced the last 6 months at home with their children and will be very pleased to have them return of school! During this time, many have juggled working, whilst attempting to home school their children. There has never been such a focus on the importance of school and the hopes for our children to succeed, so they are best equipped for the future.
With that in mind, we thought now would be an appropriate time to look at how you can help your children with a gift to help fund their university education, a deposit for a first car or home, or indeed a pension.
There are many products on the market to help your children on the savings ladder: children’s savings accounts, Junior cash or stocks and shares ISAs (JISAs), Child Trust Funds accounts, and National Savings premium bonds. You can even start a child’s pension now. Here we summarise a few of the options you may want to consider:
Children’s savings account
You can open an account with a bank or building society on behalf of your child any time and they can start managing it from age 7. Instant access, however, does not pay very much interest. Regular savings accounts, where you are limited on withdrawals, may pay a little more interest.
Child Trust Funds
In 2002, the government introduced Child Trust Funds (CTFs). These plans were available for children born after 1st Sept 2002 and before 2 January 2011, giving each child £250. The idea being that children, when they turn 18, have access to savings. Family can pay in up to £9,000 (2020/21) each year, with the child’s birthday considered the start of the year. You can still pay into these existing plans if you set them up before 2011. CTFs have since been replaced with Junior ISA’s.
Junior ISAs are a savings plan for children until they are 18. There are 2 options; a cash ISA or stocks and shares ISA: or you can have 1 of each. If you want to open a Junior ISA for your child and they already have a Child Trust Fund, you can ask the provider to transfer the money over to a Junior ISA. Cash ISAs are protected from tax on the interest they earn. Stocks and Shares ISAs are ‘tax-efficient’ because their investment is free from any liability to Capital Gains or Income tax. You can save up to £9000 into these plans for the year 2020/21.
NS&I Premium Bonds
When you purchase Premium Bonds, you are entered into a monthly prize draw, where you can win between £25 and £1,000,000 tax free. You can buy them on behalf of your children, as you must be 16 or over to buy them, with a minimum of £25 investment. You can purchase a maximum of £50000.
If you are looking at tax free options and to lock in money for a little longer, you could look at starting a pension for your child which they could only access aged 55. Whilst you could set it up when they are young, it would transfer to your child when they are aged 18. You can save up to £2880 each year with the government then topping up contributions by 25%, taking you to £3600. You can save more, but you wouldn’t receive any more top up. The benefits of starting a pension for a child is not only the government top up, but also the number of years the money has to grow.
If you are interested in exploring investment options on behalf of your child, then please do get in touch.
As with all investments your capital is at risk. The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.