How to build savings for your child

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child savings

child savingsAll parents want to give their children the best possible start in life, and investing in a savings scheme of some kind is a great way to provide them with a better future.

Here, we investigate the available options.

Child Trust Funds (CTFs)

Labour launched Child Trust Funds to encourage people to save for their children’s futures. However, the current government has now scrapped the initiative.

Instead, it has introduced Junior ISAs – brought in last November – which offer similar benefits to the tax-efficient savings accounts of the same name for adults (see below for more details).

Only children who have not received CTF vouchers can have the accounts, which will not be kick started with a government contribution in the same way as CTFs.

Jason Hollands of F&C Investments said: “In time we would not be surprised if the CTF and Junior ISA regimes were merged.

“In the meantime, there are still CTFs offering access to a wide range of investments, while the CTF allowance has been increased to £3,600 for the current tax year to harmonise with the Junior ISA.”

Junior ISAs

There are two main types of Junior ISA: Cash, and Stocks and Shares.

You can split your contributions between the two should you wish, although only one Cash and one Stocks and Shares Junior ISA can be held per child at any one time.

The maximum that can be paid in this tax year is £3,600, while the tax advantages include no income tax on savings and no capital gains tax or tax on dividend income for those who choose the investment version.

Cash Junior ISA accounts worth a look include Nationwide’s Smart Junior ISA and Skipton Building Society’s Junior ISA, both of which are currently paying 3.00%.

Children’s savings accounts

If you can afford to invest more than £3,600 for your child, you can choose to open a children’s savings account in addition to a CTF or Junior ISA.

As with adult savings accounts, there are fixed-rate, easy-access and regular saver versions.

One of the best accounts on the market at the moment, if you can afford to pay in £10 a month for the next year, is the West Bromwich Regular Saver Child account.

It runs for 12 months – during which you cannot make any withdrawals – and pays a hefty 4.60%.

Other options include the Northern Rock Little Rock Instant Access account, which pays 3.00% on £1 or more and allows unlimited deposits and withdrawals.

Child pensions

Making regular contributions to a child or grandchild’s pension may not seem like the obvious choice for most parents.

However, child self-invested personal pension (Sipp) provider Alliance Trust Savings reckons that new parents could make their baby a millionaire in retirement by investing in one of its funds.

Its figures indicate that a monthly contribution of £83 would be enough to ensure a pension fund of more than £1 million in 60-odd years – as long as the child also continues contributing in adulthood.

Disclaimer: Where we compare financial products offered by different financial services providers or make a recommendation in relation to a particular product or provider, we do so as the providers of an information service, and this is not intended to constitute a recommendation, invitation or inducement to any particular individual to make any specific investment.