06 November 2015

Long-term saving for children

With university costs and the housing market rising, it has never been more important to start thinking about children’s financial futures as early as possible.

And it’s not just parents who want to make sure their offspring are financially supported as they grow up. Many grandparents also want to make a financial contribution to their grandchildren beyond slipping them the odd £10 and popping cash or a cheque in their birthday card.

Whether you are a parent or a grandparent, there are plenty of options open to you when it comes to saving for children. We take a closer look at some of the most popular.

Saving for your child

Open a savings account

Opening a savings account for your child is a great way to put some cash aside for their financial future, and also get them into the habit of saving themselves. The account can be in the child’s name but would typically be administered by you. How old the child has to be to take full control of the account will vary between products and providers, so it’s important to read all the small print.

Once the account is open you can pay in as much as you want, whenever you want (within the account limitations). You may want to set up a standing order for a set sum each month, or simply top it up around their birthdays or Christmas.

If you do want to open a savings account, you’ll need to consider which type. An easy access account would mean money can be deposited and withdrawn as you wish. However, notice accounts, where you have to give notice before making a withdrawal, or fixed term accounts, where the money is locked away for a set period, typically offer better interest rates.

Open a JISA

A Junior ISA (JISA) is a tax-free, long-term way to save for your child. There are 2 types of JISA; cash and Stocks and Shares. No tax is paid on any interest earned, or any capital growth or dividends received.

Only a parent (or legal guardian) can open a JISA, however, grandparents and other family members can make contributions to the account throughout the year.

It’s also worth bearing in mind that no money can be withdrawn from a JISA until the child whose name it is in turns 18, at which point control of the account will transfer to them. This means they have full control over how any money saved for them is spent.

Fixed Rate Bonds

If you have a lump sum you’d like to give your child rather than setting aside some cash for them each month, fixed rate bonds may be an option. They typically offer a better interest rate than savings accounts with a variable interest rate, as the money is locked away for a set period of up to 5 years. But as the interest rate is fixed, it may not always have a better rate than a more flexible savings account during the 5 year term.

Saving for your grandchild

Open a savings account

Grandparents can open a savings account for their grandchild – you just need to provide documentation, such as their birth certificate. The account would be in the child’s name but would typically be administered by either yourself or their parents. How old the child has to be to take full control of the account will vary, so it’s important to read all the account details.

Once the account is open you can pay in as much as you want, whenever you want (within the account limitations). You may want to set up a standing order for a set sum each month, or simply top it up around their birthdays or Christmas.

If you do want to open a savings account, you’ll need to consider which type. An easy access account would mean money can be deposited and withdrawn as you wish. However, notice accounts, where you have to give notice before making a withdrawal, or fixed term accounts, where the money is locked away for a set period, typically offer better interest rates.

Contribute to a JISA

Junior ISAs (JISAs) are a tax-efficient way to save for your grandchildren in the long-term. There are 2 types of JISA; cash and Stocks and Shares. No tax is paid on any interest earned, or any capital growth or dividends received.

While grandparents can’t open a JISA for their grandchild (unless they're the child's legal guardian), they can contribute to one opened by their parents or guardians. However, remember there is a limit to how much can be saved or invested each year, so if you plan to make a generous contribution it might be best to consult their parents and check that it won’t put the account over the limit. The annual JISA limit changes every year, for the 2015-16 tax year it's £4,080, find out more at gov.uk.

It’s also worth bearing in mind that no money can be withdrawn from a JISA until the child whose name it is in turns 18, at which point control of the account will transfer to them. This means they have full control over how any money saved for them is spent.

Fixed Rate Bonds

If you have a lump sum you’d like to give your grandchild rather than setting aside some cash for them each month, fixed rate bonds may be an option. They typically offer a better interest rate than savings accounts with a variable interest rate, as the money is locked away for a set period of up to 5 years. But as the interest rate is fixed, it may not always have a better rate than a more flexible savings account during the 5 year term.

If you’re looking to open a savings account for your child or grandchild you may find we have the right account for you. We offer a range of children’s savings accounts and a cash JISA.

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