Money Saving Ideas For Children

We’re constantly being reminded of the need to save for our old age. For some of you this advice may have come a little too late; your savings pot might be a little too small to be of much use. That doesn’t mean we should give up totally. The next generation, our children, will have it hard. Economic uncertainty will last for quite some time yet. Now is the time to get your child into the habit of saving.

Planning for their future doesn’t have to be hard. Small amounts of cash saved on a regular basis will add up in the long run. By starting now, you can remind your child that there is a brighter future. Here’s a few of the best money saving ideas for your kids:

Savings accounts

It’s pretty difficult to find a bank or building society that doesn’t have accounts specifically for the younger generation. Freebies designed to bring your child’s money into the ‘loving arms’ of bank X abound. Whilst you may not have a great opinion of bankers right now it’s not them you should be thinking about.

Keep these points in mind:

  1. Although rates can change, the level of interest is key
  2. Interest on the accounts is payable at the parents tax bracket i.e. the same rate of income tax you pay
  3. The first £100 pounds saved is tax free but you’ll need to fill out an R85 (available from the Post Office

National Savings

Available to children under the age of 16, National Savings Bonus Bonds are a great way of saving for your child. Here are the key points:

  1. You, the adult, has to buy the bonds on behalf of your child
  2. National Savings interest is fixed rate (2.5%)
  3. Bonds have to be until the age of 21
  4. If the bonds are held for 5 years they qualify for a bonus
  5. Tax free and you child can have up to £3000 in bonds
  6. To apply pick up the NSA769 booklet from the Post Office

Child trust funds

Child Trust Funds were a great idea. The scheme paid out between £50 and £500 to parents of children born between 31 August 2002 and January 2011. The money was supposed to be used to open a Child Trust Fund into which you paid regular amounts. Sadly, things didn’t quite work the way they were supposed – a high percentage of payments were never claimed – so the government scrapped them.

If your child was born between the dates shown above you can still make a claim.

Junior Isas

This scheme is the replacement for the Child Trust Fund. Any child not eligible for the CTF can claim their Junior ISA. The ISA allows your child to save £3,000 per annum but the account is locked until they reach the age of 18.

Junior ISA Key Points

  1. If you son or daughter missed out on the CTF then they will be eligible for the Junior ISA.
  2. One cash and one investment ISA allowed per child
  3. The annual limit can be split between the two
  4. Annual savings limit of £3,000 per annum
  5. Interest is tax free
  6. Parents won’t be able to transfer a CTF to a Junior Isa

Friendly Society Bonds

What is a Friendly society?
Basically, they are mutual organisations that supply investors with with money related products and insurance. The various plans are a great way for you tuck away some money in a number of tax-free investment vehicles ready for the day your child hits 18.

There is a negative aspect; charges can be high as, in effect, they are endowments so what you gain from the tax free status you might lose in charges. Worth thinking about before you rush out to buy a policy.

Funds

Investment funds are regarded as the place to be when it comes to long term financial planning. This approach needs careful consideration (get some professional, unbiased advice on where to invest).

Fund key points:

  1. The savings method is best approached with five or ten years plan in mind
  2. Children under the age of 18 are not legally allowed to on these types of trust fund (unit or investment)
  3. You will have to manage the fund for your child
  4. Ignore the free incentives – pick a fund that offers the highest return
  5. Assets in the fund are transferred to your child when they reach 18 years old
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