Saving For Your Child – 3 Important Questions

There are so many different ways we can save on behalf of our children:

• Child Saving Accounts
• Child ISA
• NS&I Bonds
• Trust Fund, etc.

It can be daunting deciding how best to save for them. In this blog post we will look at 3 questions that will hopefully help you to decide the best saving method.

1. When should I start saving on behalf of my child?

You can never start saving for your children too early. For many children, when they are born, people will not only send gifts but will also gift money. Some parents might use this money to purchase items the child needs. Others they will start thinking about opening a savings account.

It’s at this stage that all the different saving options might seem a little overwhelming. One thing to remember is that the sooner you open a savings account the sooner the money will start earning interest. Interest may be paid monthly or annually. Generally speaking, if the interest is paid into the savings account monthly then the interest compounds. So effectively you are earning interest on your interest. Setting savings goals can be tricky but SavingsCalculator.org has a great tool for this.

If you are unsure what to do with the money in the long term then it would probably be wise to open an easy access savings account while you decide on which savings methods to employ longer term. At least that way the money your child does have, benefiting from accruing interest.

2. Do I want my child to be responsible for their money from 18 years old?

This is such an important question!! One that you really need to give some thought to before opening an account that will automatically revert to your child’s control at a certain age.

So many parents will open savings accounts without thinking about what happens when your child is old enough to manage their own money. For example, between 2002 & 2011, the UK government ran a scheme to encourage parents to save for their children in a Child Trust Fund. The government gifted money to children at certain stages in their life that could only be paid into a child trust fund. Parents also had the option to pay money in monthly. On the child’s 18th birthday, they had full access to all the money in their fund.

If you think back to being 18, your financial priorities then would probably be very different than they are now. Do you really want your child to have access to ALL the money that has been saved over the last 18 years? This point moves on nicely to the next question

3. Should I employ more than one saving method for my child?

It is a great idea to have more than one saving method for your child. As an adult, depending on what your savings are earmarked for, many people will have easy access saving accounts, long term saving accounts, ISA’s etc. The same principle applies to children too.

Children need accounts that are suited to the purpose of the money held there. When they are gifted money, you might allow them a certain percentage to save towards an item they really want, so an easy access savings account would be great. You might also insist that a lump of the money is paid into long term savings, so it would help them later in life when they want to purchase a car, etc., In that instance a children’s ISA or long term savings account would suit better.

While we’re on a roll, here’s a bonus question to think about.

4. Do you want to treat the money you save for your child, differently to money gifted to them?

As well as saving money that has been gifted to your child for birthdays, etc., you might also be in a position where you want to save money for your child. Do you want the money that’s been gifted, in the same pot as the money you’re saving for them?
For some people they might be happy for there to be no differentiation with the money. For others you might be saving the money so it can help them onto the property ladder, help them with university, etc. In this instance you might want to control the money you’re saving for them. So opening an account in your name and gifting it to them when the time is right, might be the best option.

Disclaimer

The information in this article is not professional advice. I do not have a background in finance. I’m simply highlighting some points to consider before starting to save for your child/children. If you require advice then please seek advice from and independent financial advisor.