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| Saving for children: where to do it and how to encourage them | Saving for children: where to do it and how to encourage them |
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| Telling a young child that you are saving a pot of money which they will not be able to access until they are 18 is unlikely to elicit squeals of delight, but with any luck it will amount to a tidy sum to be put towards their future. | Telling a young child that you are saving a pot of money which they will not be able to access until they are 18 is unlikely to elicit squeals of delight, but with any luck it will amount to a tidy sum to be put towards their future. |
| Despite the squeeze on household finances, it seems that families are still finding cash to put by for children. The latest government statistics, released last week, showed that in the 2012/13 tax year 295,000 Junior Isas (Jisas) were open. Although far short of the 1.2m forecast for the first year, take-up of the accounts now seems to be gaining momentum and the sums being invested in them are sizeable. An average of £1,327 was paid into each one, more than the typical investment into their predecessor, the child trust fund (CTF). | Despite the squeeze on household finances, it seems that families are still finding cash to put by for children. The latest government statistics, released last week, showed that in the 2012/13 tax year 295,000 Junior Isas (Jisas) were open. Although far short of the 1.2m forecast for the first year, take-up of the accounts now seems to be gaining momentum and the sums being invested in them are sizeable. An average of £1,327 was paid into each one, more than the typical investment into their predecessor, the child trust fund (CTF). |
| There are still around 6.4 million savers with CTFs. At present, they cannot shift their funds into Jisas, which offer greater investment choice, but there are proposals to allow this outlined by the government. | There are still around 6.4 million savers with CTFs. At present, they cannot shift their funds into Jisas, which offer greater investment choice, but there are proposals to allow this outlined by the government. |
| Here are some options to save for your child's future. | Here are some options to save for your child's future. |
| Junior Isas | Junior Isas |
| The annual allowance for a Jisa is currently £3,720. There is no capital gains or income tax to pay on these accounts, and, like adult Isas, you can choose whether to save into a cash account, stocks and shares, or a mix of both. | The annual allowance for a Jisa is currently £3,720. There is no capital gains or income tax to pay on these accounts, and, like adult Isas, you can choose whether to save into a cash account, stocks and shares, or a mix of both. |
| "If you are starting an investment for a baby in a Jisa, now could be the time to be taking maximum risk in the stock market, or as much as you can bear," says Philippa Gee from Philippa Gee Wealth Management. "This gives a long enough timeframe to claw back any losses from volatile periods." | "If you are starting an investment for a baby in a Jisa, now could be the time to be taking maximum risk in the stock market, or as much as you can bear," says Philippa Gee from Philippa Gee Wealth Management. "This gives a long enough timeframe to claw back any losses from volatile periods." |
| An investment of £50 a month, assuming a return of 5% after charges, would amount to £17,533 over 18 years, according to calculations from IFA Chase de Vere. | An investment of £50 a month, assuming a return of 5% after charges, would amount to £17,533 over 18 years, according to calculations from IFA Chase de Vere. |
| Patrick Connolly from Chase de Vere favours global funds for a Jisa, such as M&G Global Dividend or Aberdeen World Equity, and adding a wider variety of funds to the mix as the pot grows. | Patrick Connolly from Chase de Vere favours global funds for a Jisa, such as M&G Global Dividend or Aberdeen World Equity, and adding a wider variety of funds to the mix as the pot grows. |
| Gee adds: "If you want to invest for an older child, with only a handful of years to go before they are 18, you can reduce risk to take account of the shorter timeframe." An option for a more cautious, passive approach might be a low-cost equity tracker, such as the HSBC FTSE All Share index fund. | Gee adds: "If you want to invest for an older child, with only a handful of years to go before they are 18, you can reduce risk to take account of the shorter timeframe." An option for a more cautious, passive approach might be a low-cost equity tracker, such as the HSBC FTSE All Share index fund. |
| Watch out for initial charges on managed funds, which are typically around 5%, but easy to avoid. Discount brokers and advisers including Bestinvest, Chelsea Financial Services, and Hargreaves Lansdown, refund you most, if not all, of this charge when you invest. You can switch between cash and stocks and shares Jisas with different providers, and back again. You can also change the fund in which your child's savings are invested, or switch from one cash account to another paying a higher rate. | Watch out for initial charges on managed funds, which are typically around 5%, but easy to avoid. Discount brokers and advisers including Bestinvest, Chelsea Financial Services, and Hargreaves Lansdown, refund you most, if not all, of this charge when you invest. You can switch between cash and stocks and shares Jisas with different providers, and back again. You can also change the fund in which your child's savings are invested, or switch from one cash account to another paying a higher rate. |
| If you prefer the security of cash, Halifax offers a best-buy Jisa paying an interest rate of 6%; the catch is that this rate is only paid if parents also hold an Isa with the bank. Otherwise, the account pays a variable rate of 3% on deposits of £1 or more. Another table-topping rate comes from Coventry building society, which pays a variable 3.25% on its Jisa. | If you prefer the security of cash, Halifax offers a best-buy Jisa paying an interest rate of 6%; the catch is that this rate is only paid if parents also hold an Isa with the bank. Otherwise, the account pays a variable rate of 3% on deposits of £1 or more. Another table-topping rate comes from Coventry building society, which pays a variable 3.25% on its Jisa. |
| Children aged 16 or over can apply for an adult cash Isa, into which they can invest £5,760 this tax year. But they can't invest in a stocks and shares adult Isa until they're 18. The money in a Jisa can be rolled into an adult Isa. | Children aged 16 or over can apply for an adult cash Isa, into which they can invest £5,760 this tax year. But they can't invest in a stocks and shares adult Isa until they're 18. The money in a Jisa can be rolled into an adult Isa. |
| Karl and Hayley Bostock, 31 and 36 respectively, from Sleaford, Lincolnshire, are saving for their two children, Finley, four, and Sophie, one. "We opened accounts soon after they were born, with a child trust fund for Finley, as this was the option available then, and a junior Isa for Sophie," says Hayley. | Karl and Hayley Bostock, 31 and 36 respectively, from Sleaford, Lincolnshire, are saving for their two children, Finley, four, and Sophie, one. "We opened accounts soon after they were born, with a child trust fund for Finley, as this was the option available then, and a junior Isa for Sophie," says Hayley. |
| The couple pay £100 a month into each of these accounts. After taking advice from Chase de Vere, they opted for a variety of funds, picking Threadneedle Global Equity & Bond, and Jupiter Merlin Balanced for Finley's CTF, and Aberdeen Multi Asset for Sophie's Jisa. They hope the future proceeds will be put towards university fees. | The couple pay £100 a month into each of these accounts. After taking advice from Chase de Vere, they opted for a variety of funds, picking Threadneedle Global Equity & Bond, and Jupiter Merlin Balanced for Finley's CTF, and Aberdeen Multi Asset for Sophie's Jisa. They hope the future proceeds will be put towards university fees. |
| Children's savings accounts | Children's savings accounts |
| National Savings & Investments premium bonds may be a perennial favourite financial gift for children, but should be given a miss, says Andrew Hagger, finance expert at MoneyComms, as there likely to be better returns elsewhere. The odds of winning a prize have worsened, with the proportion of the total invested paid out in winnings set to fall from 1.5% to 1.3% on 1 August. | National Savings & Investments premium bonds may be a perennial favourite financial gift for children, but should be given a miss, says Andrew Hagger, finance expert at MoneyComms, as there likely to be better returns elsewhere. The odds of winning a prize have worsened, with the proportion of the total invested paid out in winnings set to fall from 1.5% to 1.3% on 1 August. |
| Banks and building societies offer a range of children's accounts. Like adults under 65, children have a personal allowance of £9,440 a year, which is the income they can receive tax-free. A parent or guardian needs to complete HMRC form R85 and send it to the bank or building society where the child has the account to register. | Banks and building societies offer a range of children's accounts. Like adults under 65, children have a personal allowance of £9,440 a year, which is the income they can receive tax-free. A parent or guardian needs to complete HMRC form R85 and send it to the bank or building society where the child has the account to register. |
| But remember, emphasises Anna Bowes at Savings Champion, that money given to a child by a parent outside a Jisa which earns gross interest of more than £100 in any tax year is taxed as the parent's own income. At a rate of around 3%, a parent would fall foul of this rule on savings of about £3,300, says Bowes, and, as the amount increases over the years it could have a significant impact. This rule does not apply to money from grandparents or other relatives and friends. | But remember, emphasises Anna Bowes at Savings Champion, that money given to a child by a parent outside a Jisa which earns gross interest of more than £100 in any tax year is taxed as the parent's own income. At a rate of around 3%, a parent would fall foul of this rule on savings of about £3,300, says Bowes, and, as the amount increases over the years it could have a significant impact. This rule does not apply to money from grandparents or other relatives and friends. |
| The highest rates paid on children's savings accounts tend to come from those that require a regular contribution, with the top rate paid on Halifax children's regular saver. This is a 12-month fixed-rate bond paying 6% interest and requires savings of between £10 and £100 per month. The bank also has also an easy access account paying 3% on balances up to £20,000. | The highest rates paid on children's savings accounts tend to come from those that require a regular contribution, with the top rate paid on Halifax children's regular saver. This is a 12-month fixed-rate bond paying 6% interest and requires savings of between £10 and £100 per month. The bank also has also an easy access account paying 3% on balances up to £20,000. |
| Pensions | Pensions |
| Setting aside money for your children's retirement is unlikely to be on many parents to-do lists, with more pressing demands for their start in life to consider. But with more and more young people struggling to provide for later life, you can give them a helping hand if you have enough cash to spare. | Setting aside money for your children's retirement is unlikely to be on many parents to-do lists, with more pressing demands for their start in life to consider. But with more and more young people struggling to provide for later life, you can give them a helping hand if you have enough cash to spare. |
| You can save up to £3,600 a year into a stakeholder pension on behalf of your child, with huge growth potential given the pot cannot be accessed until at least age 55. "Charges are a maximum of 1.5% for the first 10 years then 1%. These are simple plans, though they have limited investment choice," says Tom McPhail at Hargreaves Lansdown. Providers include Aviva, Standard Life and Legal & General. You get tax relief on the contribution, on growth, and a 25% lump sum that can be taken at retirement. | You can save up to £3,600 a year into a stakeholder pension on behalf of your child, with huge growth potential given the pot cannot be accessed until at least age 55. "Charges are a maximum of 1.5% for the first 10 years then 1%. These are simple plans, though they have limited investment choice," says Tom McPhail at Hargreaves Lansdown. Providers include Aviva, Standard Life and Legal & General. You get tax relief on the contribution, on growth, and a 25% lump sum that can be taken at retirement. |
| Encouraging kids to get involved | Encouraging kids to get involved |
| There is an array of options for parents keen to encourage money management skills, including colourful websites, iPad and smartphone apps. | There is an array of options for parents keen to encourage money management skills, including colourful websites, iPad and smartphone apps. |
| Roosterbank.com, for example, is an entertaining online budgeting tool. It provides children with a personalised "dashboard" that allows them to save up virtual pocket money. | Roosterbank.com, for example, is an entertaining online budgeting tool. It provides children with a personalised "dashboard" that allows them to save up virtual pocket money. |
| Parents have a separate dashboard where they can manage one or several of their children's accounts, set weekly pocket money, for example, and boost or cut pocket money whenever they want. Children can choose from buying games or toys through the site's online store, giving to charity or taking it out as cash. There is also an online community where children can talk to others and play interactive games. | Parents have a separate dashboard where they can manage one or several of their children's accounts, set weekly pocket money, for example, and boost or cut pocket money whenever they want. Children can choose from buying games or toys through the site's online store, giving to charity or taking it out as cash. There is also an online community where children can talk to others and play interactive games. |
| Another app that can help teach money management skills is Curious George's town (£1.99), which teaches young children to save virtual coins, and earn more by doing real chores set by their parents, such as tidying their room. | Another app that can help teach money management skills is Curious George's town (£1.99), which teaches young children to save virtual coins, and earn more by doing real chores set by their parents, such as tidying their room. |
| Top savings accounts | Top savings accounts |
| Britannia | Britannia |
| Yorkshire BS | Yorkshire BS |
| Coventry BS | |
| Powered by MoneySupermarket for the Guardian | Powered by MoneySupermarket for the Guardian |