The Best Options When Saving For A Child’s Future | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 16/09/2020

With rates as high as 3.00%, children’s savings accounts offer some of the most competitive savings rates in the charts. This, combined with the increase in the Junior ISA limit to £9,000 during the 2020/21 tax year, has made saving for a child’s future using a children’s savings account or JISA highly attractive for parents and grandparents – but are they always the right option?

Below we’ve looked at different life stages for a child and looked at some of the best savings options available at that time.

The best option when saving for a baby’s future

It is never too early to start saving for a child’s future and starting a savings habit for a child when they are new born will give the savings time to build up and accumulate interest so there will be more in the savings pot when they are older. As savings have a long time until they will be needed, choosing to invest into the stock market in preference to a savings account may offer better long-term returns, but parents should always be aware that investing comes with the possibility of seeing the value of the initial investment diminish.

An option for parents or grandparents looking to invest on behalf of a child is to set up a stocks and shares ISA. As children under the age of 18 cannot hold investments in their name, the adult setting up the investment will have to do it under their name, which will mean that this investment uses some or all of their own tax-free allowance for the tax year. Saying this, as the Personal Savings Allowance currently allows up to £1,000 of interest to be tax-free per tax year, many adults no longer need to utilise their entire ISA allowance each year.

The best option when saving for an older child/teenager’s future

As the child gets older, setting up an investment may no longer be the best option, instead parents can consider opening a Junior ISA (JISA). A JISA is opened in the child’s name but they cannot access the money until they turn 18 and allows up to £9,000 tax-free deposits to be made each tax year. The highest rate currently being offered on a cash JISA is 3.25% AER on National Savings & Investments’ Junior ISA.

Another good option as children get older is a children’s savings account. These accounts often allow children to access the money within the account (usually needing a parent’s permission), which can be a good way of introducing children to managing their money. The best rate available on a children’s account without stringent opening restrictions is 2.50% being offered on HSBC’s My Savings.

The best option when helping your child buy their first home

Once children become adults many still need help from their parents to boost their savings, for example money that has been saved into a Lifetime ISA (LISA), so that they can put the deposit down on their first home. Many parents and grandparents have started using equity release to release money from their homes to enable them to give their children or grandchildren part of their inheritance early so that they can get onto the housing ladder. Those thinking about this option should get independent financial advice first as it can have a long-term impact on their finances. But with the equity release market becoming increasingly competitive, for many it is a good option that allows them to help their grown-up children onto the housing ladder without having to sell their own home and downsize. For more information about equity release visit our equity release explained page.

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