How to Invest in a Savings Account for Children in the UK
We all want to give our children the best start in life, and investing in a child savings account is one way to do that. Child Trust Funds may have been scrapped in the United Kingdom, options still exist to invest in a savings account for your child in the U.K. You may also want to encourage your child to save on his or her own and learn the value of money at an early age.
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Instructions
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Find the Right Savings Account
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Decide if you want to save for your child or if you want the child to be able to save money as he or she grows older. This will dictate the kind of savings account you open.
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Choose the right type of investment among the many available child-specific accounts and funds. They include cash accounts, National Savings and Investments' Bonds, mini cash individual savings accounts, and investment trusts. Child Trust Funds have been abolished in the United Kingdom.
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Shop around for the best interest rates if opting for a cash account. Look at both bank and building society accounts. Don't just settle for your existing bank or building society without doing your research, as some accounts can give very poor returns. Check the interest rate annually at a minimum; the interest rate may well start to decline over time. Banks and building societies offer savings accounts for children with various incentives.
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Opt for a National Savings and Investments account if you want safe long-term savings for your child. National Savings and Investments (NS&I) is a government-backed provider of savings and investment accounts in the U.K, backed by Her Majesty's Treasury. Your money is safe, no matter how much you invest, though the rates of interest may be slightly less than competitors.
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Pick one of several savings accounts at National Savings and Investments. A popular product is Children's Bonus Bonds, a fixed-interest investment that can be taken out for youngsters under age 21. You are allowed to invest from £25 to £3,000 every five years, tax-free. Avoid this if you think your child will need to access the money within this timescale. Children's Bonus Bonds can be bought only at your local Post Office or by post at Children's Bonus Bonds, National Savings and Investments, FREEPOST GW3276, Glasgow, G58 1BR. You can find an application form on the NS&I's website.
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Select Index-linked Savings Certificates from NS&I if you want to invest more. The certificates allow you to invest between £100 to £15,000 for three or five years, are guaranteed to keep up with inflation and are tax free. Premium Bonds are another popular choice, allowing you to buy £100 to £30,000 worth of bonds over an unlimited period. These do not give interest but are entered into a drawing for tax-free prizes each month. You can buy both of these products from the NS&I's website.
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Be brave. If you are willing to take risks with your investment, you could opt to invest in the stock market. Various investment funds are aimed specifically at children, including Invesco Perpetual's Children's Fund and The Scottish Investment Trust PLC's Stockplan: A Flying Start. Make sure charges are levied at less than 1 percent annually. Always be prepared for losses as well as gains. See a financial adviser for further advice.
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Let your child save on his or her own: When your child reaches 16, he or she can open a tax-free Mini Cash I.S.A. or a Maxi I.S.A. in his or her own name. The child is allowed to put in up to £3,600 in each tax year. Once the child turns 18, he or she is eligible to open a stocks and shares I.S.A.
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Tips & Warnings
You can find an independent financial adviser via NS&I's website.
Child Trust Funds have been scrapped in the United Kingdom. All payments will cease from 2011. Child Trust Funds already in existence can continue but will receive no further contribution from the government as of that time.
Be careful of tax implications. Money saved by parents and step-parents will be taxed if it earns more than £100 in interest a year. This does not apply to money saved by grandparents or other adults. To avoid tax being deducted on children's savings, fill in Inland Revenue Form R85, available from any bank or building society.
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