The 3 Ways to Start Saving for Your Child's Future

As parents we want to give our children the best start in life, and it's never too early to start thinking about saving for their first car, university fees and expenses, or even a deposit for their first house.  Did you know you can even take out a pension for your child?

However, finding an extra pot of money to putt away for your child each month can be a challenge, with many of us struggling to make ends meet at all.  But even if you can only afford a few pounds every so often, it can add up, so here we look at the different options for saving for your child's future.

Piggy Bank

The traditional way for children to save is in a piggy bank or money box, but this works better for children to save up for something they want to buy, rather than as a long-term savings strategy.

Having said that, it is the ideal opportunity to start teaching your child how to save and encouraging a savings habit.  Perhaps they want a large toy and it's a long time till their birthday or Christmas.  Sit down and explain how many weeks of pocket money they need to save to buy it.  You could even give them an 'interest' incentive, by agreeing to add the final £5 or £10 to the total they save.

Piggy banks are ideal for very young children to learn the value of money and how important it is to keep it in a safe place.  They can begin to understand the difference between notes and coins, and it is an ideal time to start giving your child regular pocket money.

Pocket money is the ideal way for children to learn the value of money.  And to begin to understand the harsh reality of spending: when it's gone, it's gone.

Related post: How to Help Children Learn the Value of Money

Savings Account

The next stop on is a Children's Savings Account at a bank or building society, ideally at a local branch so children can pay money in themselves and see it grow in their book or statement.

Encourage your child to save part of their pocket money each week or month, for example, half to spend, half to save.  Make them responsible for buying those little pocket money toys, comics and other bits each week, perhaps topping up with an extra amount for holidays or days out.  This way your child begins to learn the value of money too, not just to collect it.

You can start an account with as little as £1 and your child can start managing it themselves from around the age of 7.  With an instant access account, children can access their savings whenever they want, while a regular savings account ties in their money for a set period of time and requires an amount paid in each month.  This can be a great way to encourage a savings habit in older children.

If you can put away a regular amount each month, even as little as £10 a month, you could consider opening another account in their name that doesn't have instant access and offers the opportunity of greater future returns.

Saving just £10 a month for 18 years in a simple savings account at 2% interest would result in a pot of more than £2,500 which would definitely help with university fees when they reach 18.  If this amount were invested it could be worth significantly more.

Find out where to get the best returns and what is on offer via comparison websites like Money Supermarket or Which?

Junior Cash or Stocks and Shares ISA

For longer term savings, tax free, an ISA is a better option.  The money is tied up until your child reaches 18, but it will offer a higher return on the money invested than a simple savings account will.  Ideally, you would have both for each child.  Don't forget, friends and family can contribute to children's accounts too, which may be a better birthday present than yet another toy!

ISAs can either invest cash and receive interest, or invest in stocks and shares which is likely to offer a higher return on your investment.  Many Junior ISAs offer a combination of both, which suits those who are less risk averse.

Each child can have one Junior Cash ISA and one Junior Stocks and Shares ISA during their childhood, but it is possible to transfer to different providers within the lifetime of the ISA.  The Junior ISA limit is £4,368 for the 2019-20 tax year.

If your child already has a Child Trust Fund (they were born between 2002 and 2011), you can ask the provider to transfer the money into a Junior ISA.  If your child is aged 16 or 17, they can take out an (adult) cash ISA and save up to £20,000 a year, as well as up to £4,368 in a Junior ISA.

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