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Savings and Investment - Saving for Children


Saving for Children - Savings and Investment

About Saving for Children

Investing 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.

Child 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.

Savings accounts
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
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 Society Bonds
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 tax-free status.

Stakeholder Pensions
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.


List of Savings For Children Account Providers


OCIS provide general financial information, we urge you to consult an Independent Financial Adviser ( IFA )
before making any important decisions about your finances.

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