‘Savings for children’
August 13, 2007 at 10:19 am
It is wise to start thinking about children’s savings when they are still young, as there are a huge range of bank and government incentives that could benefit the child in later years. It’s a fact that the earlier you start saving, the more interest you will accumulate for your child. Not only that, but having his or her own bank account encourages the child to save and manage his or her own money. The savings will be very beneficial in the future, when the child is old enough to be financially independent and will need to think about investing in further education or a new home.
A child’s first savings usually consist of cash deposits made to a children’s bank account opened with a bank or a building society. These accounts often have a maximum age limit which can be as high as 21 and, because they are specially designed for children’s first savings, the interest is substantially higher than on standard accounts. Most accounts also offer incentives. For example, currently HSBC offers incentives such as CD or theme park vouchers, whilst Natwest sends your child their very own “piggy bank” to paint and personalise.
As Christine Ross, Head of Financial Planning at SG Hambros, notes, often parents will choose to save the child benefit they receive (which is currently paid at a rate of £16.50 per week for the first child). If we assume such regular payments and we take interest to be roughly 4.5%, one might be surprised to note that the child will receive almost £24,000 when they are 18. The reward of savings is thus huge, as this will give the child a firm foothold when they are older.
What is particularly good news where child savings are concerned is the new Child Trust Fund which has been in place since 2002. The Child Trust Fund is a savings and investments account for children whereby every child who is born after 2002 is entitled to a £250 government-funded voucher to start their new account.
Though nothing can be withdrawn from the account till the child reaches 18, this is their own money and aims to give them a good start in life and encourage saving. Anyone can add to the account whether they be a parent, friend or relative, and these deposits can be up to £1200 a year. In addition, neither you nor your child will pay tax on income and gains in the account. To make things even more palatable, when the child reaches 7, the government will make a further contribution of £250, with children in lower income families receiving an additional £250.
Although these are very good options for putting aside money for children, some believe that there are better ways besides savings accounts. For example, it is possible to use the avenue of stock market funds, which have been shown to outperform other types of investment. However, such methods of saving money, though they can be more flexible and give better results, can also be risky and volatile especially in the short term. Whichever option you take, are plenty of ways to give your child a headstart in life financially.
