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As a parent, one of the most important responsibilities you have is to ensure the financial security and well-being of your child. It’s never too early to start planning for your little one’s future, and it’s crucial to make informed decisions when it comes to saving and investing. In this blog, we’ll explore the best ways to save for your child’s future, focusing on a variety of financial products available in the UK.
Individual Savings Accounts (ISAs)
Individual Savings Accounts, or ISAs, are tax-efficient savings and investment accounts that allow you to save for your child’s future. There are several types of ISAs, such as Cash ISAs, Stocks & Shares ISAs, and Innovative Finance ISAs. Each type of ISA has its benefits and drawbacks, so it’s essential to consider your financial goals and risk tolerance before opening an account. You can open an ISA with Wealthify here to start investing in your child’s future today. Keep in mind that the annual ISA allowance is £20,000, which can be divided among the different types of ISAs as you see fit.
Child Trust Funds (CTFs)
Child Trust Funds (CTFs) were a government initiative launched in 2002 to encourage long-term saving for children. Although the scheme was discontinued in 2011, existing CTF accounts can still be managed and topped up. Parents or guardians can invest up to £9,000 per tax year, with the funds growing tax-free until the child turns 18. If your child has a CTF, you can transfer the funds to an ISA for potentially better investment options and lower charges.
Premium Bonds
Premium Bonds are a unique savings option provided by National Savings & Investments (NS&I). They’re not traditional savings accounts, as they don’t pay interest. Instead, each bond enters a monthly prize draw, giving you the chance to win tax-free prizes ranging from £25 to £1 million. While the average return on Premium Bonds is relatively low, they can be a fun and exciting way to save for your child’s future. You can invest up to £50,000 per person, and the bonds can be easily transferred to your child when they turn 16.
Regular Savings Accounts
Regular savings accounts can be a simple and effective way to save for your child’s future. These accounts often offer higher interest rates than standard savings accounts but typically require you to make regular monthly deposits. It’s essential to shop around and find the best interest rates, as well as checking for any restrictions or penalties for withdrawing funds.
Pensions
It may seem odd to consider a pension for your child, but it can be a powerful long-term savings strategy. By opening a pension for your child and making regular contributions, you can take advantage of the power of compound interest over many years. Plus, the government adds tax relief to pension contributions, effectively boosting the amount you save. Keep in mind that funds in a pension cannot be accessed until the beneficiary reaches the minimum pension age, currently set at 55, but likely to increase in the future.