for Children - Savings and Investment
About Saving for Children
in a child's future is one of the best gifts you can bestow. You
can present your child with a lump sum when they are 18 - invaluable
if they are going into further education and this kind of investment
may teach them financial prudence. there are a number of regular
saving and investment schemes to choose from, you don't have to
be well-off yourself to help your child. How you invest money in
your child or grandchild's future depends on the amount of risk
you want to take. Savings
accounts are the lowest risk, with market-based investments
the highest. If you intend to invest in stock-market based savings
you should leave the money to grow for at least five years.
Trust Fund ( CTF )
To give children a head start the Government's Child Trust Fund
(CTF) will start in April 2005. Under this scheme, every child born
after August 31, 2002 will receive money which can be invested tax-free
in a number of ways until the child is 18. Children born to families
with incomes of less than £13,480 pear year will get a voucher
for £500 to invest. All others will receive £250. The
payments can be invested in a stakeholder
pension, a shares scheme or a cash fund and will be topped up
when the child reaches five, seven, 11 and 16 years of age. Friends
and families will be able to top up the tax-free plans to a maximum
of £1,200 a year.
Banks and building societies offer savings accounts for children.
Using this method you can invest a little in a child's account over
a long period of time and get steady returns. Avoid accounts that
offer bonuses on joining or gifts and pick the account that has
the best interest rate and the least gimmicks.
If you are want to take a bit of a risk and are looking to invest
for the long term, you may consider an investment fund that invests
in a diversified portfolio of equities which will be managed on
your behalf. Talk to an Independent
Financial Adviser and look for a trust with a proven track record.
You can make an investment into these funds on behalf of your child
by completing an application form, where you can designate their
initials on the form. This creates a bare trust where your child
is the beneficiary of the investment and they are entitled to the
capital and income from the investment.
National Savings is a tax-free investment backed by the Government.
You can invest a maximum of £1,000 per issue in a Children's
Bonus Bond. These are five-year investments and can be rolled over
every five years into a new issue, and the child takes control of
the bond once they reach 16 years of age. Your can get the children's
bonus bond booklet from post offices.
Friendly societies offer a range of children's savings plans. These
can take the form of with-profits bonds or Isas, as well as monthly
savings plans. The advantage is they are tax-free but the maximum
investment is £25 a month or £270 a year, so they are
relatively inflexible. Accounts are normally held for at least 10
years and if they are open for less time than this they lose their
If you have spare cash, you could consider opening a Stakeholder
Pension for your child. The maximum contribution is £2,808
a year for a child, which the taxman tops up with £792. Your
child won't be able to receive the money until they are 55.
Tax on a child's savings income depends on who set up the savings
plan. If anyone other than the parent is saving for a child, income
will be set against the child's personal allowance (£4,745
in the 2004/5 tax year). But when a parent saves for a child under
18 income is treated as the parent's and is then taxed at their
rate of income tax. If the total income in any one tax year is £100
or less, the income is treated as the child's and can be offset
against the child's own personal tax allowance. If both parents
are saving for their child this threshold increases to £200.
of Savings For Children Account Providers
provide general financial information, we urge you to consult an
Financial Adviser ( IFA )
before making any important decisions about your finances.