Childrens' Savings

The best way to save serious money for a child's future is to compare the returns and charges of each savings account.

Also bear in mind the timescale and risk involved.

If you're looking into children's savings, you need to decide whether:

You want to save for a child or You want a facility for the child to save themselves.

And don't forget the tax

You want a facility for the child to save themselves.

In this event ease of access to depositing and withdrawing the money is important.

Many of the usual high street banks have accounts geared towards children - they want to "start them young".

These will have various incentives for the child like clubs/magazines, teddy bears, birthday cards vouchers and CDs - all geared to the age of the child. These are there to attract your child and help them to get an interest in saving money

You want to save for a child

In this case the bottom line is how good is the interest rate ie how much will the money you invest earn.

Besides this there are various ways in which you can invest. These are

Cash accounts

National Savings / Investments Bonds

Mini Cash Isas

Investment trusts / unit trusts

Tax Exempt Friendly Society Schemes

Stakeholder Pensions

Child Trust Funds

Cash accounts

These are the most obvious children's saving vehicles.

They are typically the type of savings accounts you will get in your high street bank / building society.

Always shop around, as the interest rates payable on many of these accounts can be very poor. So don't simply go to your existing bank or building society.

Interest is what will make the account worthwhile or not. As it compounds you could see a huge exponential type growth.

Once you've started an account be careful to keep a close eye on the interest rate, as a favourite trick of our dear friends in the banking world is to sucker us in with a good rate and then quietly let it decline.

An annual review would be a very good idea - unless you want your child to inherit a derisory sum that barely matches the cash you've put away.

To see the current Top 3 Best Buys for Children's savings Click here

National Savings / Investments Bonds

If you are planning significant long-term savings for your child you could look at National Savings and Investments' Children's Bonus Bonds.

The major advantage is that you can avoid paying tax on the interest earned.

These bonds - a bond is a type of investment - can be taken out for children aged up to 16.

They usually pay a fixed rate of interest for a defined period eg 5 years. While you could get a higher interest rate from a high street bank investing in these governmental bonds is safe and you don't have to watch them for interest rate changes - so fire and forget, which frankly is what most of us will do anyway.

Mini Cash Isas

When the child has reached the age of 16, they could open a mini cash Isa in their own name.

At the time of writing deposits up to £3,000 for each tax year can be put into a mini cash Isa.

The advantage of these accounts are that the interest is tax-free. This remains the case even after the child has started working and paying tax.

Investments / unit trusts

You could also consider investing on the stock market.

Shares have tended to give a better return over savings over long periods. Well that's been the history so far. However bear in mind that there is no guarantee this will continue.

So you have to be prepared for a loss.

Various investment houses have schemes specially aimed at children. But watch out for the charges, which can easily drain even a good performing investment.

You should be looking for something charging less than 1% pa, ideally with no upfront / joining charge.

Tax Exempt Friendly Society Schemes

These offer low premiums (ie the regular contributions you need to make) and are often aimed at children's savings.

However they can be inflexible and cost too much - out of every £10 saved, between £2 and £3 is typically absorbed in charges.

Stakeholder Pensions

If you are really serious about a long-term savings plan for your child then Stakeholder pensions are something to look at.

They were designed as a way of simplifying personal pensions but whether by design or fault are being used for children's savings. You can read more about stakeholder pensions here

Tax

And don't forget tax. While most children are not taxpayers, if money is put in by a parent, any interest over £100 a year will be subject to tax as if it is part of the parents' income.

To stop tax being deducted from the interest on your child's savings get Inland Revenue Form R 85. It should be available from any bank or building society.

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Read More

Saving for Your Child - Reasons To Start Now

Investing In Shares For Your Child?