5 Practical Ways to Save for Your Child’s Future
13th August 2021
Do you find yourself worrying about your child’s future wellbeing?
You’re not alone. It’s completely normal to be concerned about giving your child the best chances of success once they hit adulthood. Fortunately, there are several steps you can take now to save money for their future. It’s never too early to start preparing!
1. Start a separate savings account
To save money for your child’s future, start a separate savings account and set it aside for that specific purpose. Opt for a savings account with a high yield rather than an instant access account. A higher rate will encourage you to contribute funds and reward you for doing so..
You might also like to name the account something indicative of where the funds are going, such as the name of your child. That way, there will be the incentive to continually add money where you can. A personal name is also likely to help remove the temptation to withdraw funds from that account prematurely.
2. Teach good habits with a savings account
By giving your child the responsibility of looking after their own money, you will instill good habits and values in them from a young age.
Children’s savings accounts come in two forms: regular savings and instant access. Regular savings accounts typically pay a higher rate of interest, but the interest is reduced if the child withdraws from that account within a certain period of time. By contrast, an instant access account does not penalise your child for withdrawing funds, but the rate of interest is often lower.
A parent can open a children’s bank account for a child of any age, but children must be at least 11 years old to open their own bank account. Some banks will require parental permission for any child younger than 16. Certain children’s accounts may expire once the child reaches 18 or 19, so it’s best to check the fine details with your bank.
3. Purchase premium bonds
National Savings and Investments (NS&I) offers a popular investment option if you’re looking to save for your child’s future: Premium Bonds. This easy access savings account gives investors the chance to win tax-free prizes every month.
You can buy any amount of bonds between £25 and £50,000 and each £1 bond is entered into the draw every single month. Prizes range from £25 to £1 million and the winners are drawn at random.
The odds of winning are 34,500 to 1 (for every £1 Bond), and unfortunately, there are no guaranteed wins. But encouraging children to check if they’ve won each month is a fun way to get them interested in their finances and develop a positive relationship with saving. When the child turns 16, the premium bonds can be officially signed over to them.
4. Set up a junior ISA
Junior ISAs (Individual Savings Accounts) are tax-free savings accounts specifically for children under 18 years old. They replaced the Child Trust Fund in 2011 and have since served as another method of saving for a child’s future.
Junior ISAs come in two categories: cash, and stocks and shares. It’s up to you whether you allocate all of your savings to one option or split them between the two. All funds are free from tax, which is not the case with other children’s savings accounts. The interest rates also tend to be higher than they are in adult ISAs.
Children can manage their own junior ISA account from the age of 16, but they can’t withdraw funds until they reach 18 years old. At that time, the Junior ISA will automatically convert into an adult cash ISA.
While a Junior ISA is a popular savings option, there is an annual deposit limit of £9,000, so this may not be the best option for those looking to save more cash.
5. Sell outgrown children’s products
Every penny counts when it comes to saving money for your child’s future. Selling their outgrown clothes, toys, and other belongings won’t earn hundreds of thousands of pounds, but it is an effective way of generating more cash to contribute to savings accounts, ISAs, or premium bonds, where the returns may be much higher.
Use the age of the internet to your advantage by selling old cribs, cots, high chairs, or pushchairs that are still in good condition. As long as you’re prepared to organise postage, you can sell your child’s old belongings to anyone who’s willing to pay on platforms such as eBay and Facebook Marketplace. You can also use websites like Preloved and set up local pickup to avoid the hassle of postage.
It’s never too early to start thinking about your child’s future. By taking these steps now, you can help to prepare your child for the competitive adult world by giving them a head start on their savings.
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