11 Easy Tips for Finding the Best UK Children’s Savings
I once heard it argued that the only true lasting legacy we leave behind upon our deaths, are what we have done for the community and for children. Indeed, consider what we provide our children. We give them our genes; our name; and upon our death, our possessions. However, our children could have major financial needs prior to when they join the workforce.
Enter Children’s Savings. This is a fantastic way to help prepare for our children’s future, by saving a sizable amount of money. Our children can use these funds for planned situations such as college, or unplanned ones such as our sudden death. Regardless of how our children eventually spend the funds, we should follow some basic tips to select the best Children’s Savings scheme for our kids:
1. Determine the method for the savings
Children’s Savings can take two forms. You can save money for the child, or have the child save his or her own money. If you save for your child, then the key is to find the type of the investment that will reap the best interest rate.
Meanwhile, if you want the child to conduct the saving via the best children’s saving, then the key factor is how easily the child can deposit and withdraw funds. High street banks oftentimes offer such accounts, and provide different types of incentives (i.e. CDs, magazines, teddy bears, etc.) to encourage children to save and to start saving as early as possible.
2. Take more risks on Children’s Savings investments
When investing for Children’s Savings, long-term (at least 10 years) investments should provide you with a better return than cash accounts do.
3. Be wary of investment product titles
The majority of Children’s Savings products are actually accounts for adults, which include lower monthly contributions and different titles.
4. Consider cash accounts first
This is a basic type of children’s savings account that you can easily find in either high street banks or building societies. It is important to shop around to locate the best interest rate possible. If you secure a competitive interest rate, then the account’s compound interest could accumulate amazingly fast. However, even after opening an account, keep an eye on the interest rate, at great rates have a tendency to slowly decline within time. It is highly advisable to conduct an annual review to verify that that the Cash Account remains a viable option for this type of child savings.
5. Consider the risks and rewards of investments and unit trusts
In the long term, shares have historically provided superior returns than savings have. However, keep in mind that when dealing with the market, there is always the possibility that you could experience a loss. Different investment houses provide investments and trusts that financial gurus have designed for Children’s Savings. However, the charges on such products tend to be high, which could quickly dissolve any high returns on the investment. Ideally, look for investments and unit trusts with zilch joining charges and with overall 1% pa charges.
6. Tax-exempt Friendly Society schemes tend to be inflexible
These investments tend to have low premiums and may seem ideal for Children’s Savings. However, they oftentimes have high price tags and are quite inflexible. Thus, you should certainly proceed with caution.
7. Consider Cash ISAs if your child is 16-years-old
Your child can have a Cash ISA in his or her own name, once reaching this age. The maximum deposit for each tax year is 3600. This is an excellent option as the interest is tax-free, even after the child joins the workforce and begins to pay taxes.
8. Secure your child’s Child Trust Fund (CTF) entitlement
If your child was born after September 1, 2002, then he or she is entitled to avail of a child trust fund savings account. That includes a voucher from the government that is worth a minimum of 250. Wait, there is more! You can top up this voucher to 1,200 annually, and the interest earned is tax-free.
9. Consider the simplicity of a Stakeholder Pension
Investors are frequently using Stakeholder Pensions for Children’s Savings. The UK government created this new type of personal pension scheme, in 2001. The primary benefits of Stakeholder Pensions make them much fairer to their customers than traditional Personal Pensions. Stakeholder Pensions are flexible and a ceiling exists on their costs.
Anyone can avail of Stakeholder Pensions, which make them ideal for Children’s Savings. If you currently have no income, then each tax year the maximum you can contribute is 3600 pa gross. However, if you have an income, then the same age-based limits apply, as with other Personal Pensions, and Occupational Pensions. The older you are, the higher the percentage of your gross earnings you can pay into the pension, for this children’s savings account. However, the ceiling on this percentage’s figure is 91,800 annually.
10. Look for National Savings and Investments’ Children’s Bonus Bonds
These bonds are ideal for long-term savings for your child. Generally, you can take out these bonds until your child is 16-years-old. Here is how they work. Typically, Children’s Bonus Bonds provide a fixed rate of interest for a set timeframe. The primary benefit of Children’s Bonus Bonds is that you will not have to pay any taxes on the interest that the bonds earn. Another benefit is that since the interest rate remains unchanged, you can avoid stressing about whether the interest rate has risen or fallen.
11. Factor in taxes when considering Children’s Savings
If a parent deposits money into a Children’s Savings account, then the government will tax any interest that exceeds 100 per year, as it is a portion of a parent’s income. However, you can prevent Inland Revenue from taxing interest that your child’s Children’s Savings account earns, by completing the Form R-85. You can pick up a copy of that form in any UK bank or building society.
Finally, contact the Financial Services Authority for further Children’s Saving advice.
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