Boost Your Child's Savings Pot

New research suggests that Brits are saving more for their children. Here's some of the savings options available so you can give your little one the best financial head-start.

New research has revealed that regular savers in Britain are managing to squirrel away over £1300 every year for their children.

Norwich and Peterborough Building Society found that adults who regularly paid into their child's account managed to put aside £112 a month on average.

With the effects of the global credit crunch still unfolding, and concerns about debts and borrowing still hitting the headlines, this is a good sign that many Brits are still putting their kids first.

The Early Bird Catches The Worm

Starting early with your savings has always been a very Foolish idea.

As Maynard Paton's My Son The Millionaire highlights, the earlier you start, the better the return.

For example, if you saved £112 a month until your child was 18, by the time he/she reached adulthood your child's pension pot would be worth £39,110 thanks to the miracle of compounding.(That's assuming growth of 5% each year.)

If you're a more optimistic saver and put your child's savings into the stock market, an 8% return would mean that you could potentially get £53,769, providing a great kick-start for your kid as they enter adulthood.

A Trusted Boost

Most parents whose children were born on or after 1 September 2002 are entitled to a Child Trust Fund Voucher (CTF) from the government, worth at least £250. You can top up these funds with your own money, up to a maximum of £1,200 per year.

What's more, when your child reaches 7, they receive another top-up payment of at least £250. This will not affect the annual £1,200 limit.

There are various accounts you can choose from, including those which are kept as cash, as well as those which invest in the stock market. With the stock market being so jittery at the moment, you may think that shares aren't the best option. However, history suggests that savings accounts do not usually perform as well as money invested in shares over the long term, especially when inflation is taken into account.

Bear in mind that neither you or your child have access to the funds until they reach 18. If it's flexibility you're after, this account may not be the right one for you to invest in.

Savings Haven

The more flexible option is a conventional savings account. Children can earn £100 in interest tax-free every year on money given to them by each parent or step-parent (so that's £200 from two parents).

Simply submit a form R85 to your bank or building society to receive gross interest.

You must bear in mind that if you're saving on behalf of your child with an account in their name, the money will become legally theirs when they reach 18. I don't know about you, but when I was 18 I was interested in spending money not saving and investing. So beware!

A Pensions Honey Pot

If you really wanted to invest in your child's future, and are scared they may not be responsible enough to handle a potentially large amount of money at 18, you could always put your contributions into a pension for them.

Currently, the government adds 22% tax relief for every £1 you put in, up to a maximum of £2,808 per year.

If you contributed the full amount, your payments would be boosted to £3,600. Even if you never made another contribution, the pension pot could be worth a massive £248,090 (assuming 8% annual growth) by the time they reach 55. That is truly the miracle of compounding.

Find Out More About Saving For Your Children / Make Your Child Wealthy