Setting aside a bit of money each month can be a great way to get your child off to a winning start once they opt for independence. With lots of options available though for saving, it can be difficult to make a decision. Here we look at some of the options for Children's savings...
Junior ISA's provide a tax-free way to save for your children. Currently, you can stow up to £4,080 a year, but the money can only be accessed when the child is 18. Like with regular Isas, Junior Isas can be held in cash, stocks and shares – or a combination of both.
NS&I Children's Bond
With an NS&I Children's Bond you can invest up to £3000 which is tax free for five years. Interest is offered at a guaranteed rate, and the child gains control of the account when 16. If you want to access the money before that point you will be charged a penalty fee which will be the equivalent of 90 days worth of interest on the amount you are withdrawing.
Premium bonds can be opened up in the names of children under 16, by their parents or guardians. Instead of being paid interest on the investment, you are entered into a free 'raffle' every month. with a chance of winning prizes between £25 and £1,000,000.
All winnings are tax free, but the chances of any one single ticket being drawn as a winner are currently about 26,000-1
Easy Access Savings
Depending on the account you choose, easy access savings account are available for individuals up to an age of between 15-20. They work in the same way as regular saving accounts, in that you can get a decent rate and access the account when you want. The downside is that tax is applicable as it's classed as a savings account.
If you can commit to regular sums being put away, you can get better rates of interest with a regular savings account. They're ideal for those who can put the money away and forget about it, but if you need access regularly to withdraw then you may have problems, as there are limits to the regularity and amounts that you can withdraw.
Currently, all children are entitled to a tax free amount of £10,600. You need to fill in an R85 form for HMRC to claim this, and once done no tax will be applied on interest earned from your child's savings. If you haven't done this, and have paid interest, you can claim the money back by filling in an R40 form for your child.
You can hold shares or bonds on behalf of your child in a bare trust or designated account. The money made can be lucrative if you get it right, but you will be taxed on any interest over £100 at your normal rate.
You could also open a pension in your child's name and make regular payments into that. You can currently save £2,880 each year tax free, which is boosted to £3,600 including tax relief. When your child reaches 18, they then take control of the pension, and will ideally continue paying into it until they retire. Obviously this option isn't much good if you're starting a university fund, but perhaps worth a look if you're looking more long term security for your child.