We all want the best possible future for our children. So what are your options when it comes to saving money for your child?
There are two main ways to save money for a child:
Junior Individual Savings Accounts (ISAs) allow an easy way for parents, family and friends to contribute, but the money will remain locked away until your child reaches 18, at which time they will be given full control.
Junior ISAs are available for children under 18 who reside in the UK and do not already have a Child Trust Fund in their name. You can place up to £3,600 per year into a junior ISA, which will provide a tax free wrapper for the money.
Both junior cash ISAs, and junior stock and shares ISAs are available. A stocks and shares ISA is likely to be more risky than a cash ISA, which acts more like a straightforward savings account.
Junior ISAs look set to become widely available and can represent a good long term way to save money for your child.
Children's Savings Accounts
Many banks and building societies also offer savings accounts targeted at children. Children's savings accounts work in a broadly similar way to adult savings accounts and there are several different types available, including:
Fixed term accounts: Requiring you to tie up savings made for a fixed period of time, usually up to three years.
Notice period accounts: This type of account gives easier access to savings, but you can only withdraw funds after a set period once you have notified the bank / building society.
Easy Access accounts: Allow you to withdraw money easily at any time. Easy access accounts work best as a short term money saving method.
As a rule of thumb, the longer the commitment the higher the interest rate is likely to be. Children will have a personal allowance of £7,475.00 for the 2011/12 tax year; any interest earned above this threshold will be taxed.
Parent's contributions may be subject to taxation above a certain limit.
Putting money away for your child's future can have two major benefits. It can give them a financial leg-up later on, and it can also teach them some valuable lessons about the importance of saving if you keep them involved in the process.
This guest post was written by John Hughes who is the resident blogger at www.independentfinancialadvisor.co.uk, a small UK based site that provides access to independent financial advisors as well as to debt advice charities for those struggling with their debts.