Make your baby a millionaire

Category: Pensions
Date: 7/30/2010

For most parents, putting money away on behalf of their children is an integral part of securing their child's financial future.

However, with the child trust fund soon to be scrapped, parents will be looking around for alternative ways to help their offspring become child savers.

Children's savings accounts are always a good place to start, offering young savers a range of different types of savings accounts.

Which type of children's savings account is right for a child depends on what they (or the parent) will want the money for.

While some children's savings accounts allow instant access to funds, there are also fixed rate bonds or accounts that can't be accessed until the child turns 18, where early access to the money is restricted.

A less obvious choice for most parents, however, would be to open a pension on behalf of their child.

It must be remembered that putting money into a pension means it can not be accessed until the age of 55.

However, the potential to provide a child with real long term financial stability is tempting.

A parent contributing £88 per month into a child's pension could turn their baby into a millionaire by the time they are ready to retire, according to Alliance Trust.

Tax relief paid by the Government on pension contributions means that for every £80 paid in to a pension for a child, a further £20 will be added to the fund by the state.

Grandparents and other family members are also free to make their own payments into the pension, which will qualify for tax relief too.

By the time the child reaches 65 (and assuming the investments will grow by 6% each year), a pension pot of more than £1 million could have been accumulated.

If you're interested in children's saving accounts or opening a pension on your child's behalf, take a look at our best buy charts to see what is on offer.