How to save money for Children
As a parent, grandparent, or guardian, it’s natural to want to give a child the very best start in life – setting them up for a wonderful, worry-free future – and that includes financially. Wondering how to save money for children to ensure they get a head start? By opening a child’s savings account, you can ensure your child or grandchild is able to make the most of all the benefits of your decision.
No matter how small the amount you can save each month, it all adds up and can have an impact on their future life. After all, they do deserve the best of everything!
Is it worth saving for children?
It is worthwhile to put money into a child saving plan even if you can only afford to save a small amount each month. It is one of the best ways to save for children – as the money builds up over the years. Imagine helping your child, or grandchild, with buying their first car, paying towards university fees or even assisting towards a property deposit. It will provide a wonderful feeling for both you and them!
Helping little ones to start their adult lives with savings behind them also means that you can get them involved in saving early on. If you let them know about the savings, it can help with teaching your child about money and them learning important lessons about finances early on.
How much should I save for my child?
The best way to save for children? Whatever you can afford to pop into a child’s savings account, monthly – even if it’s a small amount. Bringing up a child can be an expensive time, and you may not be able to afford to save as much as you would like each month. However, the key to successful long-term saving is making regular contributions, even if they are small. If you put aside as much as you can afford to each month – small amounts will soon add up in the long run!
Whatever you can afford to save, the sooner you start saving, the sooner your money can start to earn interest, increasing the potential the account has to grow over time – ready for when it is needed.
Are children’s savings taxed?
Children can be taxed on the interest earned on savings. Just like adults, they have an annual income tax allowance. Although most of children won’t earn enough to reach this limit, there is the risk that they will pay on savings and investments.
It is also worth noting that, if the money you put into your child’s savings account earns over £100 in interest each year, you may have to pay tax on the interest, depending on your circumstances. The £100 limit applies to income from gifts from parents, step-parents, or guardians only. This doesn’t apply to any gifts given by grandparents, other family members, or friends.
The best way to ensure your child’s savings aren’t taxed is to choose a tax-efficient savings option, such as a Junior ISA or a Children’s Tax Exempt Plan.
Long-term child saving plan options
Junior ISAs and a Children’s Tax Exempt Plan are both long-term savings options and some of the best ways to save for children. Any interest earned in these accounts is tax free, the cash sum paid out to the child at the end of the savings period is also tax fee, and you won’t need to worry about capital gains tax on any interest made when your child cashes in the investment.
What’s more, the £100 rule mentioned above doesn’t apply to these child’s saving accounts, so you could use these to put money away for a young one’s future without worrying about being taxed on any interest.
Please note that tax rules may change and depend on individual circumstances.
A Junior ISA is a simple way to invest in your child’s future, building up a savings pot that they’ll be able to access when they turn 18.
The plan must be opened by the child’s parent or guardian by investing new funds or transferring an existing Junior ISA or Child Trust Fund, but once opened anyone can pay the Direct Debit or add lump sums to the plan. You can save up to £9,000 in the current tax year. Children aged 16 and 17 can open a Junior ISA themselves.
Children’s Tax Exempt Plan
A Children’s Tax Exempt Plan is a great way to give your child some financial support for the adult years ahead – they could use it to help with their university fees, to travel the world, or put it towards a deposit for their first home.
Available for 0 to 15 year olds, these are long-term saving plans offered by friendly societies, such as Foresters Friendly Society, which allow you to save £25 a month for anything from 10-25 years.
A Children’s Tax Exempt Plan can be held alongside a Junior ISA or Child Trust Fund.
How can I save money for my grandchildren?
There are a number of ways to save and invest for your grandchildren, including opening a Friendly Society savings account such as a Children’s Tax Exempt Plan or paying into their Junior ISA.
While you won’t be able to open a Junior ISA for your grandchild, you will be able to make contributions once it has been set up by their parents or guardian.
If you decide to open a Children’s Tax Exempt Plan you will be asked to confirm that you have the parent or guardian’s consent to set up the savings plan for your grandchild.
When can our child access the money we save for them?
Accessing the money saved for the child is different depending on which child’s savings account you opened
With a Children’s Tax Exempt Plan, the child will be able to access the money when the account matures. At the maturity date, the child must be at least 16 years old, and you must have paid into it for at least 10 years.
With a Junior ISA, your child will be able to access their savings when they turn 18. At this point, they can either continue to invest the money in an adult ISA or they can withdraw the full amount saved.
The first step to start saving money for your child
So, how exactly do you save money for children? The first step is to browse our child saving plan options and find a plan that suits your financial plans moving forward.
If you have any questions about saving money for your child, or you’d like to discuss the options available, please get in touch. Our UK based team will help make saving as easy as possible. Get in touch via your preferred method today for further help.
The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.
Tax rules may change and depend on individual circumstances. Contributions paid into a Foresters Friendly Junior ISA or Children’s Tax Exempt Plan are invested in a fund which includes stocks and shares, the value of the plan may fall as well as rise and your child may get back less than you have paid in.