Saving for children – cash options

Saving and investing for children is not so different from investing for any other purpose – you need to determine your time horizon, attitude to risk and to ensure that any saving is undertaken tax-efficiently. There are several options available for those looking to build up a pot of cash for their offspring, some of which are listed below:

Savings and deposit accounts

These are often the first port of call for parents wanting to establish a pattern of saving for their children. Most high street and internet banks have child-specific accounts and online comparison can help you find the best interest rate. These accounts are protected by the Financial Services Compensation Scheme, so there is little risk to capital; however, the purchasing power of the capital sum can be eroded by inflation.

Premium bonds

Premium bonds have been around for generations but are increasingly overlooked as a potential investment for children. A monthly prize draw has awards ranging from £25 to £1m. Prizes are tax-free, but no interest is paid out on your investment. Investors can invest £25 to £50,000. However, the odds of winning are 24,500 to 1 and inflation can erode the capital investment.

National Savings

Products from National Savings & Investments (NS&I) are backed by the Government. They are often tax-free and will pay rates of interest competitive with those of high street banks and building societies.

Children’s savings bonds

Offered by friendly societies, these generally have a maximum investment amount of £25 per month and invest in with-profits funds. The plan must run for at least ten years. You will receive a guaranteed minimum cash sum at the end, plus an amount based on the growth of the original sum; however, the value of these investments can go down as well as up.

Junior ISAs (JISAs)

JISAs allow children to start saving early within a tax-free wrapper. JISAs can hold cash, stocks and shares, or a combination of the two. The savings belong to the child, who can take control of the JISA at the age of 16; however, they can’t withdraw the money until they are 18. Although a JISA can only be opened for a child by a parent or a guardian with parental responsibility, anyone can pay money into the JISA for the child’s benefit.

Everyone’s needs and circumstances are individual to them and the above are just some of the options available for saving for your children. It is therefore important to consider all options and seek independent financial advice from a qualified adviser, such as those at Prosser Knowles to make sure you select the best option for you.

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