Saving for your children

Saving for a child today is a wonderful gift for their future. Not only can they start their adult lives with some savings in hand, but getting kids involved early with saving also helps them learn important lessons about money. Here are some of the savings options for children that can help you start saving.

Children’s savings accounts

You can set up an account with a bank or building society on behalf of a child. They can start managing their own account once they reach the age of seven. These accounts offer a great way to learn how to manage money and help get kids into the savings habit. And some providers will include a gift with the account, like a money box. Start an account with as little as £1 for any child aged up to 18. In some cases, your child can take out their money whenever they like.

There are two main types of children’s savings accounts: instant (easy) access, and regular savings.

With an instant access account, you or your child can withdraw or deposit money at any time. Normally, you get a lower rate of interest than with other account types.

Regular savings accounts are designed to encourage children to save an amount every month, and often run for a set amount of time, for example 12 months. If you withdraw within that time the account might reduce the interest you’ll get. These accounts usually pay a higher rate of interest than instant and easy access accounts as a result.

Junior cash or stocks and shares ISAs

Cash ISAs can be a good savings option because your child will pay no tax on the interest they earn while Stocks and Shares ISAs are ‘tax-efficient’ because their investment is free from any liability to Capital Gains or Income tax. While a parent or guardian must open the account, the money belongs to the child. But they can only withdraw the money after turning 18. Each child can have one Junior Cash ISA and one Junior Stocks and Shares ISA during their childhood, but it is possible to transfer each to different providers.

Junior Cash ISAs work the same way as a savings account, except that the interest is tax-free and the money is locked up until the child is 18. Junior Stocks and Shares ISAs let you buy shares, bonds and other eligible investments on behalf of a child. The value of these investments can go down as well as up.

The J-ISA limit is £9,000 for the 2021/22 tax year. If the child is aged 16 or 17, they can take out an (adult) cash ISA and save up to £20,000 a year, as well as up to £9,000 in a Junior ISA (2021/22).

Child Pensions

Savings towards your child’s future retirement might not be the first thing you think of when considering the various saving options for your child. But, it does mean they’ll only be able to access this pension money when they’re a far more sensible 55 years old. This will rise to age 57 from 2028 and after that will remain at 10 years below State Pension Age. Any parent or legal guardian can set up a pension, and it will automatically transfer to your child once they reach 18. They can then start to contribute to it themselves.

You could save up to £2,880 tax efficiently each tax year with the government automatically topping up any contribution by 25%. This means your contribution automatically becomes £3,600. Contributions over £2,880 in that year are still allowed but you won’t receive any additional contribution from the government.

Any growth in your child pension is free of tax meaning that it can start to increase quickly. Like any investment though, it can also go up as well as down.

This guide is intended as guidance only, and is not financial advice. For financial advice please speak to a qualified adviser. Ammonite is an appointed representative of Julian Harris Financial Consultants Ltd, which is authorised and regulated by the Financial Conduct Authority.