(Feb 2012)

Saving for your children: 5 ways to build funds for their future

Sadly, I’m sure that life for our children is going to be tougher than it has been for us. Since the mid-90s, costs have spiralled out of control. It has been reported that property prices have increased by 240% in London since 1996, the average wedding these days costs £20,000 and it’s predicted that students could leave university with debts of up to £54,000.

So, what options do we have if we want to help ease our children’s burden by putting away some funds for their future?First, decide who is going to have control of the proceeds. If you set up an investment so the child is the beneficiary, it can’t generally be changed at a later date. There could be preferential tax benefits for choosing this option, but you could be fuelling a child’s future drug habit, if that is the unfortunate route they go down.

Here are some of the vehicles available and their benefits:  

1. Children’s Trust Fund

Long-term savings for children born between 01/09/2002 and 02/01/2011. They were used for depositing free cash vouchers of up to £250, and you could elect to increase the savings by up to £3,600. The child gets control of the money when they reach age 18. In November 2011, these funds were replaced by Junior ISAs. You can also take out an ISA in your name and retain control of the proceeds (which are tax-free).

2. Pension

We’re all living longer, so having sufficient funds for a comfortable retirement is an important issue. It is possible to contribute up to £2,880 per year into a pension for a child, and the fund will receive an additional £720 per year from HMRC. Due to the length of the investment, this could be a profitable option. What’s more, you would hope that, by the time your children received the proceeds (currently when they are aged 55 or over), they will be mature enough to spend them wisely!

3. Premium bonds

You can take these out in either the adult’s name or the child’s name, depending on who you want to get the proceeds. No interest is paid but you are guaranteed your money back and prizewinners could receive up to one million pounds!

4. NS&I

There is a range of different national savings products available to both parents and children, with different options and tax treatments. They are all generally considered to be a low-risk way to build up funds for the future.

5. Friendly societies

With this tax-exempt scheme, you can save £25 per month or £270 per year. Depending on who the proceeds are to go to, the plan can be set up in the adult’s or the child’s name.

As you can see, there are numerous different options to choose from. If you are considering saving for your children, why not book a free no-obligation consultation with us, where you will be able to consider the advantages and disadvantages of each route?

Whatever you do, remember that saving some funds for the future is better than having no funds at all!