What to do with your child's savings

It's important to start saving for your kids as soon as possible. But where should you be putting that cash?

When my son, Finley, was born seven weeks ago, he was lucky enough to get all sorts of lovely presents from friends and family. But perhaps the most important gifts he received came from his great grandparents, who all gave him some money.

They all wanted to ensure that as he grows up, he has some cash set aside should he need it, whether that’s for University fees, buying his first car or even as a deposit for his first house.

But it’s not up to him to decide what to do with that money. It’s down to me. So what should I do with it?

The death of the CTF

Back in 2002 the then-Government launched Child Trust Funds. These were tax-free savings accounts for new babies – upon birth, the parents would be sent a £250 voucher to open a Child Trust Fund. This could then be added to whenever the parent, child or family wanted to, with the money handed over to the child once they reached 18. The trust fund would have been an obvious home for Finley's money.

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However, the Coalition wasted little time in dropping the scheme, arguing that we could no longer afford the scheme as a nation. So that’s one option ruled out.

Junior ISAs

There will be a replacement, though, in the form of the Junior ISA, which was announced last October. The ISAs will provide children with a tax-free savings account, but the lack of a Government contribution means that they will not be quite so lucrative.

And much like adult ISAs, there will be limits to how much can be saved each year. For a guide to all you need to know about Junior ISAs, have a read of Government unveils new tax-free ISA for kids.

However, they are not going to hit the market until the Autumn at the earliest, so they aren’t an option for parents like me just yet.

Child bonds

This is one account I have opened for the little guy, though it’s one I’ll be contributing to rather than using the money he got from his great grandparents.

They basically work like regular savers – you pay in a fairly small figure like £15 or £25 a month, and that money is invested. However, there is an element of safety as there is a minimum cash sum you can expect back at the end of the bond’s life. So in 18 years, with a bit of luck, the bond will hand over a nice return on the money I’ve set aside each month, for Finley to do with as he wishes.

NS&I bonds

However, if you want a bit more certainty in your child’s financial future, then perhaps a National Savings & Investments Children’s Bonus Bond is a better option for you. With NS&I accounts, all of the money is guaranteed by the Government, and it’s easy to open the account – just head to a Post Office!

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Here’s how they work. You invest a lump sum, and NS&I will add the interest payment on at a fixed rate each year. They will also give you a bonus payment every five years, as well as a bonus when the bond matures on the child’s 21st birthday.

With an NS&I Children’s Bonus Bond you can invest up to £3,000 per issue per child. And each time a new issue is released you can invest a further £3,000 for each child.

However, with a rate of 2.50% of interest, it’s not quite enough to get the heart racing.

Regular savers

All sorts of banks and building societies, from Halifax to Norwich & Peterborough, offer child or family regular saver accounts. As the name suggests, the account requires you to save a regular amount each month, ranging from £10 to as much as £250 a month. In exchange for guaranteeing that you will be paying that sum in on a monthly basis, you can benefit from a really exciting rate of interest – the Halifax Children’s Regular Saver for example pays a rate of 6%!

However, it’s worth remembering that these accounts only offer such great rates for 12 months. At the end of the year you’ll need to find a new home for your child’s money, which can end up being quite a lot of work.

Getting access

Of course, as my son gets older, I’m going to want to teach him about money and the importance of saving.

If you’re in that boat at the moment, then a children’s easy access account may be an option. They work exactly like the adult versions.

My personal favourite is the Little Rock account from Northern Rock, which pays a market-leading rate of 3% and can be opened with as little as £1. And the account automatically transfers to an adult account once the child turns 16.

Bumping up their savings

A troubling statistic from voucher code website CouponCroc.co.uk caught my eye the other day. It said that 76% of recent visitors to the site reported that the tough economic conditions meant they had delayed saving for their children’s future.

No matter how bad things get, you can always find a way to put a couple of pounds aside, particularly if you make use of cashback websites. Indeed, one clever cashback site is KidStart – you can have the cashback you earn directed straight into your child’s savings account! It’s a smart little gimmick, and will allow you to save for child’s future without even thinking about it!

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