They say that the best things in life are free, but that doesn’t quite apply to children! Having children is a wonderful, life-changing experience, but although they are worth every penny, the reality is that they can be expensive.
That’s why it’s never too early to start putting money away for your child. For one thing, it is a good way to teach them about the importance of planning ahead and looking after their finances. And the sooner you start saving, the more you will be able to put aside to help them with those major life experiences, such as going to university, putting down a deposit on their new home, paying for their gap year, or helping with a first car.
If you are considering investing in your child’s future it can be a good idea to take advice from professionals, particularly if you are earning a high income. Shard Capital is one of a number of companies operating in this field who can help you make the right investment and savings choices.
So, what is the best way to go about investing in your child’s future? Here are five options to consider that could help you give them the best financial start in life.
A good place to start is by opening a child savings account at a bank or a building society. With his or her own account, your child will be able to take control of their own money and it will teach them the importance of good savings habits early in life. The other positive about child accounts is that, unlike some of the options on this list, the money is instantly accessible, making it practical if your child wants to save up for a particular item.
Although in general, these accounts attract no tax, it is worth noting that if your child earns more than £100 in interest annually from the account, you will have to pay the tax on that interest if it is more than your or your spouse’s Personal Savings Allowance.
The Junior ISA was launched in 2011 as a replacement for the Child Trust Fund. A Junior ISA is a tax-free savings account designed for under-18s. It comes in two forms. A cash Junior ISA doesn’t attract tax on any interest, while with a stocks and shares Junior ISA the money is invested in the stock market, and no tax is due on the capital growth. A child can have both types of Junior ISA though there is a maximum annual amount that can be deposited into the ISA.
A Junior ISA allows your child to control their account at the age of 16, although they are unable to withdraw any money before they are 18. If you think that your child will manage their money well, a Junior ISA could be a good choice, although if you suspect they might spend it all as soon as they turn 18, there are better investment options!
These Children’s Bonds can be purchased for any child under 16 by a parent, guardian or grandparent. They guarantee a return with a fixed level of interest over a five year period and there is no tax to pay on the returns. As they are backed by the Treasury, they are a secure method of investment, though the drawbacks are that they don’t provide the best levels of interest, and if you cash them in early, there are penalties to pay.
A trust is a legal agreement in which you put assets such as money, investments or land, into a trust and then choose a trustee to manage the assets on your child’s behalf. There are a number of kinds of trust. A bare trust will give your child full access to the assets at the age of 18, while a discretionary trust gives more control to the trustee.
For those who want to plan further ahead, there is the Junior SIPP. As with adult pension schemes, a Junior SIPP attracts 20 percent tax relief, though there is an annual limit on how much can be paid in. It is important to note, however, that these funds cannot be accessed by your child until they are 55, and that both the value of investments and the rules on pensions, benefits and tax relief could all change significantly over that time.
Whichever investment option you choose; the most important principle is that it is never too early to start saving in order to give your child the financially secure future they deserve.
Have you considered investing in your child’s future?