Although we normally try to protect children from risk, be careful not to apply that protection too strongly to their long-term savings. As Paul says, interest rates on deposit-like accounts are dire and, even if they improve, a stocks and shares-based investment, whilst 'riskier', has the best chance of giving a decent return - and I echo Paul's sentiment that advice really is essential, here.
Three further points.
First, permit yourself to have control of the funds beyond the child's 18th birthday, even if this may mean investing in your own name in, for example, an ISA. It just may be the case that, if the child is entitled to the funds at, say, 18, they may be going through a difficult time and will need some parental protection - you might consider it wise not to provide them with additional funds.
Second, remember that children, however young they are, can now hold pension plans. Not only would this be tax-efficient for you and them, but it would protect the investment, would create a pension 'habit', and should grow enormously by the time they take the benefits. Do think about using some of the savings in this manner (but not all!)
Finally, if you start a long-term savings plan for them, but then meet a premature death yourself, then your excellent sentiments will remain unmet. So also consider having - even using a little of what would have been saved - a life insurance policy written for the duration of your intended gift. | 01.09.11 @ 21:31